It is impossible to put a cost on something that does not exist, if there is no way to measure it. It is also impossible for any of these costs to be measured as accurately as they can be in traditional retail markets. If IBD, as a whole, was an accurate reflection of costs related to an individual, there would have been very minimal cost-benefit to the individual trade.
This cost-benefit calculation is even more of an unknown when you begin to look closely at individual trades. One of the greatest challenges for people doing IBD is that they are not very good at picking out whether or not a trade is an in or out for the individual trader’s business. IBD gives you no idea whether the individual’s trade is being paid for by the firm (on the margin) or whether or not they are being paid for an entire trade (on the margin).
As an example, let’s consider this scenario. You are reading a portfolio of stocks that you purchased as part of a IBD trade. Each time you buy a stock, you buy a percentage of that stock based on a percentage of the value that the company has held in the market for the past year (in percentage terms) divided by the number of shares currently in the buy or sell order books of the market. In this case, the total purchase price of the stock is $10,000. As an example, let’s say each individual bought a total of 20 shares in the buy or sell order books at a price of $10,000.
For this individual, the buy or sell order price would be $10,000 multiplied by $500,000. So each buy or sell order book would have four buy or sell orders. If the individual were being paid for these orders, it would be $1,000 per buy or pay order. At this point (which would be at the end of the month for our example), he or she had to calculate whether or not the order was paid (in the sense of being paid for) and whether or not the individual was actually being paid (in the sense of being paid and not being paid). The only way to know this is with information gleaned from this market, which has no way of measuring it.
In the case of this individual, the way for him or her to know whether or not the order was paid would be using information on each trade, which has no way of measuring order volume so he or she must determine the number of trades
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