What I’m about to share with you today may seem boring, but it can have a huge impact on how you learn day trading.
So what is this important (yet somewhat boring) task? To read and analyze your brokerage statement (and to do so often!) Reading your brokerage statement may not be too exciting until you become a profitable trader, but understanding the mechanics of how everything works will help give you an edge over the competition.
At each month or quarter,
…depending on service, traders would receive their brokerage account statement and many of them don’t know how to make sense of it. Or they don’t realize the importance of reading and reviewing it regularly. It may seem old school to read a statement or report in the age of bite-sized information and instant gratification, but it is something that has its merits.
I have had students who read it once, got overwhelmed, and never opened another statement again. Needless to say, they realized very quickly that this ignorance was harming their progress and they made sure they learned how to read their brokerage statement. It’s not rocket science and it’s actually a super-smart thing you can do to manage your money better.
In this article, I’ll help you make sense of your brokerage account statement and help you put into practice reading it and benefiting from it.
A Brokerage Statement is a monthly summary of the activity on your brokerage account.
It can be a paper statement in your mail or an electronic/e-statement in your email. OR it can be read on your brokerage platform on your dashboard, so make sure you log in to the section regularly. If you are choosing for it to be sent to you, I always urge my students to go paperless to go green. E-statements are also more secure as they are password protected. Here is my statement from one of my brokerages at TradeZero for December 2020 as an example of what it can look like.
This is from one of the brokerage accounts I use.
As you can tell, it gives me a good snapshot of all the transactions I made that month. Brokerage statements are designed to be snapshots of what exactly happened to the account in that particular time period. In the same vein, the following is a look at my yearly account statement for 2019. Notice how it succinctly summarizes how much net profit/loss I made each month that year.
A one-year total account summary of the activity on my TradeZero account.
As another example, here is a screenshot of my TradeZero profit/loss account statement for the year 2020. I also have a few other brokerages I use, which led to earning over $4 million in 2020 alone. Now that you have an idea of what a statement can look like, it’s time to take a more detailed look at what it does and why it is important.
Every day, I mentor students who want to make a mark in the world of trading.
Why Is It Important?
What I often observe is that the ones who are consistently committed to their progress are the ones who continue to make progress.
As an analogy, let us say you’re trying to lose a few inches off your waist. It’s nice to do the workouts and eat healthy because that is what you know you must do. But would you know your effort is working if you are not regularly measuring your progress? Would you stay motivated if you didn’t know whether you are making progress or not? Similarly, would you know whether your strategies are working if you do not monitor your progress and your financial health?
It provides a snapshot of how you are doing financially. Often, checking statements to monitor progress or ignoring them can be the difference between success and mediocrity. Traders who ignore this are bound to stay mediocre (at best!) A good trader stays alert and on top of things. An average trader goes with the flow without bothering to pause and pay attention to how their financial health is doing. Checking your brokerage statement regularly gives you the required information you need to get an idea about how your investments are doing.
Once you know how to interpret a statement,
…it can be a convenient way to track performance. The statement shows you all transactions that have happened in the given time period. You’ll see income, dividends, interest, etc. Your statement also shows you the value of the assets you hold, so that you can make decisions on whether you should buy, sell, or hold. It helps you monitor and manage your financial situation and this in turn makes you progress in your trading career.
In addition, it helps you spot any mistakes you are making while trading.
If you don’t read it, you might miss out on any mistakes and can get misled. You should make checking your brokerage statement a habit and a regular step that you do in your trading career. You must take the time to check whether what is happening with your finances is good for your financial health. If anything looks weird, be sure to contact your broker for an explanation and they’ll most likely work it out for you. If you don’t even read your statement, you might miss out on an opportunity to spot errors, let alone get correct them.
In order to get a better picture of what a brokerage statement contains, let’s discuss some important features of it.
Key Terms & Features
Brokerage statements can look different depending on the platform you use, though there are some common features.
Have a look at this statement from December 2020. Whenever you look at your brokerage statements from any time period, ensure that you are focused on the important stuff. That way you won’t get overwhelmed because what happens more often than not is that many beginners get caught up in trying to absorb each and every row and column of a statement. Fact is, only a few sections need to be looked at minutely.
Gross & Net P/L
Sections of a brokerage statement allow you to see the amount of money you’ve made or lost on your investments during a given time period.
Gross profit or loss refers to how much money you made or lost overall while net profit/loss refers to how much money you made or lost after deducting expenses (like your platform fee). For example, on December 3, 2020, you can see that I bought into a position at around $913,000 and sold it off for $827,000. This trade accounted for a gross loss of $85,234.03. When you include the total commissions, the net loss on the trade is $87,032.59. On the contrary, all the trades I made on the week of December 7th led to a profit, which led to a gross profit of $780,000 for that week. These sections enable you to track and monitor your performance by showing you what’s going on with your investments and how they’re doing. Based on the numbers you will know if your strategies are spot on or need tweaks.
Shares Bought & Sold
The brokerage statement also tells you what buy and sell activities have happened in the account during the given time period.
Any transactions with shares going in or out get documented here. The first two (highlighted above) columns depict the number of shares and the next two depict their value. It’s important to check this data to check for any discrepancies. When you are going long, you can see that the shares buy and shares sell numbers are the same, as displayed on December 3, 4, 15, 16 and 17. When you short a position, sometimes some positions get stuck due to trading volume and expiration dates, so you may see some discrepancies between the numbers of shares bought and sold. *While a day trader may want to exit their position completely, when you are trading with a lot of capital, there are times where you may not be able to get out of 100% of your position.
Commission & Other Fees
This is the section that contains the commission charged along with fees associated with your account for the time period.
The total commission field is the fee that the brokerage earns for helping you place your trade. The SEC, Trading Activity Fee (TAF) et al are regulatory fees charged on the sale of any security. These fees are automatically debited from the proceeds of any security sale. On December 11, you can see that TradeZero made $1,325 on my $293k profit trade, along with the minor fees that come from the regulatory sources. You must check this section every time to spot if there are any unwanted and unexpected charges. With this short term information, you can piece it together to figure out long term progress.
By extrapolating my account brokerage statements, I am able to analyze my progress, whether my strategies have been working, and what I need to tweak.
Staying on top
In order to stay on top of your financial progress and to track it, you must set up receiving your brokerage statements right away.
You can subscribe to monthly statements so they’re delivered to you either by traditional mail or email. Alternatively, you can see the statement of all your transactions along with your billing details with your broker, i.e. your ‘ledger’ by logging in to the platform. Now that you know what a brokerage statement looks like and what it contains, you’ll be less intimidated by it in the future.