---
title: "How serious are the consequences of frequent trading?"
type: "Topics"
locale: "zh-HK"
url: "https://longbridge.com/zh-HK/topics/31825786.md"
description: "The first principle of compound interest is: Never interrupt this process unless absolutely necessary. --Charlie Munger. Friends often ask: My fund has some paper gains, should I sell to lock in profits? The current situation is unclear, or some influencer says the stock market will have a major correction in the short term. Should I sell my funds and buy back after a big market drop? In fact, whenever I encounter such questions, I always say: Stick to dollar-cost averaging, hold long-term, and don't mess around! I believe that once we start buying and selling based on market conditions, we easily fall into the vicious cycle of frequent trading. And I am firmly against frequent trading..."
datetime: "2025-07-15T15:24:29.000Z"
locales:
  - [en](https://longbridge.com/en/topics/31825786.md)
  - [zh-CN](https://longbridge.com/zh-CN/topics/31825786.md)
  - [zh-HK](https://longbridge.com/zh-HK/topics/31825786.md)
author: "[四十五度阳光](https://longbridge.com/zh-HK/profiles/17463232.md)"
---

> 支持的語言: [English](https://longbridge.com/en/topics/31825786.md) | [简体中文](https://longbridge.com/zh-CN/topics/31825786.md)


# How serious are the consequences of frequent trading?

The first principle of compound interest is: Never interrupt this process unless absolutely necessary. --Charlie Munger  
Friends often ask: My fund has some paper gains, should I sell to lock in profits? The current situation is unclear, or some blogger says the stock market will have a major correction in the short term. Should I sell my funds and buy them back after a big drop? In fact, whenever I encounter such questions, I always say: Stay committed to regular investing, hold long-term, and avoid unnecessary moves!  
I believe that once we start buying and selling based on market conditions, we easily fall into the trap of frequent trading. And I am firmly against frequent trading.  
The most important reason is: Most investors often buy and sell funds at the wrong time, such as buying high and selling low, resulting in investment returns far below the inherent returns of the index.  
Another important reason is the cost of trading itself. Today, I will analyze this.  
1\. The cost of frequent trading in A-shares  
As we all know, when trading stocks and ETF funds in A-shares, we have to pay transaction fees. These mainly include stamp duty, transfer fees, regulatory fees, and commissions. The specific fee standards are as follows:  
1\. Stamp duty is 0.05% of the transaction amount, charged only to the seller.  
2\. Transfer fees are charged to both buyers and sellers, at 0.001% of the transaction amount.  
3\. Regulatory fees: Include securities management fees and handling fees. The securities management fee is 0.00487%, and the handling fee is 0.002%, totaling 0.00687%.  
4\. Brokerage commissions: Usually range from 0.3% to 0.03%, with a minimum of 5 yuan. So, if I only buy 1,000 yuan worth of ETF, I still have to pay a 5 yuan commission, equivalent to 0.5% of the capital!  
In total:  
\--Maximum total purchase cost: 0.31%, minimum: 0.04%  
\--Maximum total selling cost: 0.36%, minimum: 0.09%  
\--Total cost per round-trip trade: Maximum 0.67%, minimum 0.13%, average 0.4%  
For example, if I buy 10,000 yuan worth of S&P 500 ETF 51300, the highest fee would be 31 yuan, and the lowest would be 4 yuan. If I sell them at the same price a month later, the highest cost would be 36 yuan, and the lowest would be 9 yuan. So, for one round-trip trade, my loss would range from 13 yuan to 67 yuan.  
If I trade 10 times a year, transaction fees alone could lead to a maximum loss of 6.7%. Assuming the fund's inherent return is 10%, after deducting transaction fees, my expected return would only be 3.3%.  
Even at the lowest commission rate, the cost per round-trip trade is 0.13%. Trading 10 times a year would still incur fees of 1.3%.  
If I invest in off-exchange funds, although I avoid these stock trading fees, I still have to pay subscription and redemption fees.  
Taking the Bosera S&P 500 ETF Link A Fund 050025 as an example, the maximum subscription fee is 1.2%, and the maximum redemption fee is 1.5%, totaling 2.7%. If I trade 10 times a year, the fees would be as high as 27%!  
This cost is far higher than that of on-exchange ETFs. Therefore, I recommend investing in on-exchange ETFs rather than off-exchange funds.  
From this, it is clear that the cost of investing in index funds in A-shares cannot be ignored.  
Suppose I invest a sum of money this year in on-exchange ETF 513500 and hold it until I retire 30 years later and need the money. The transaction cost for this investment would be the cost of one round-trip trade, ranging from 0.13% to 0.67%, averaging 0.4%. Assuming the fund's inherent annualized return is 10.8% and the management fee is 0.8%, my actual annual return would be 10%. After 30 years, my total return would be:  
(1 + 10%)^30 - 1 = 1645%  
Even deducting the highest transaction cost of 0.69%, my return would still be 1644%. The transaction cost is almost negligible.  
However, if I trade 10 times a year with an average transaction cost of 0.4%, my actual annualized return would be:  
10% - 0.4% × 10 = 6%  
After 30 years, my total return would be:  
(1 + 6%)^30 - 1 = 474%  
Since 474% / 1645% = 29%, we can say that frequent trading yields only 29% of long-term holding returns. In other words, transaction fees eat up 71% of my profits!  
If we extend the time window to 40 years, the gap will be even larger, and transaction fees will eat up about 80% of the profits!  
2\. The consequences of frequent trading in the U.S. stock market  
In the U.S., trading ETFs and traditional funds does not incur stamp duty or brokerage commissions. However, when trading ETFs, we still face bid-ask spreads, which are considered a transaction cost for investors.  
For example, the bid-ask spread for S&P 500 ETF VOO is 0.01%, SPY's is around 0.02%, and VGT's average spread is as high as 0.04%.  
Of course, trading traditional index funds like VFIAX does not have bid-ask spread issues.  
Besides spreads, capital gains tax is a bigger cost when trading ETFs and traditional index funds in taxable accounts.  
If we hold a fund for less than a year, capital gains are taxed as ordinary income. For high-income households, combined federal and state taxes can exceed 40%.  
If the fund's inherent annualized return is 11%, with 2% dividends and 9% price growth, and we frequently trade within a year, even ignoring bid-ask spreads, our pre-tax return would still be 11%, but we would have to pay taxes on the 9% short-term capital gains.  
Assuming a marginal tax rate of 40% and a 20% dividend tax, our actual return would be:  
2% × (1 - 20%) + 9% × (1 - 40%) = 7%  
After 30 years, our total return would be:  
(1 + 7%)^30 - 1 = 661%  
If we hold long-term, our annual return would be:  
2% × (1 - 20%) + 9% = 10.8%  
After 30 years, our nominal return would be:  
(1 + 10.8%)^30 - 1 = 2069%  
Even if we sell all the funds then and pay the highest long-term capital gains tax of 20%, our after-tax return would still be:  
2069% × (1 - 20%) = 1655%  
And 661% / 1655% = 40%.  
We can see that frequent trading yields only 40% of long-term holding returns. In other words, taxes eat up 60% of the profits!  
If we extend the time window to 40 years, the gap will widen further, and taxes will eat up about 70% of the profits!  
Note: If these trades occur in tax-advantaged accounts like IRAs, the tax impact disappears. However, we still incur costs like bid-ask spreads, though the consequences are less severe.  
3\. Summary  
From the above analysis, we can see that whether in China or the U.S., the transaction costs of frequent trading are extremely high. They severely erode investment returns and significantly hinder our path to financial freedom.  
In fact, similar conclusions hold in other countries. Interested friends can analyze their own country's situation.  
For this reason, I advise everyone not to trade frequently but to adhere to a long-term holding strategy. This minimizes transaction costs and maximizes the inherent returns of the fund.$NVIDIA(NVDA.US) $Tesla(TSLA.US) $AMD(AMD.US) $Netflix(NFLX.US) $Super Micro Computer(SMCI.US) $Robinhood(HOOD.US) $Coinbase(COIN.US) $SPDR S&P 500(SPY.US) $VG S&P 500(VOO.US)

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## 評論 (41)

- **Assse · 2025-07-19T03:41:26.000Z**: The blogger makes a good point. I remember one day when I was trading frequently, going up and down, and the commission alone was over 700 HKD. Some stocks are suitable for swing trading, while others are better for long-term dollar-cost averaging. I hope the stocks we choose are all suitable for lo
- **忽必烈大帝 · 2025-07-17T14:13:10.000Z**: Pure chicken soup for the soul! There are differences between the A-share, Hong Kong stock, and U.S. stock markets.
- **不割 · 2025-07-16T23:06:39.000Z**: Open an account first
- **新用户_DUANHWl · 2025-07-16T18:43:37.000Z**: Learned! Frequent trading leads to significant losses, invisibly reducing returns.
- **ThompsonGuo · 2025-07-16T15:20:52.000Z**: The fees are too expensive, HKEX charges too much.
- **不在买港股 · 2025-07-16T15:14:14.000Z**: Frequent trading is prone to taxation.
- **‭‭‭‭ · 2025-07-16T15:09:45.000Z**: I am a long-term holder! Tesla is driving me crazy! After all, we are retail investors! We can't afford this rollercoaster! 😢
- **铜锣湾扎lift人 · 2025-07-16T15:08:59.000Z**: A bunch of typos
  - **四十五度阳光** (2025-07-16T16:13:35.000Z): Getting older is inevitable, hope you don't mind. I'll try to review it a few times in the future.
- **mousexxx · 2025-07-16T15:08:17.000Z**: In China, when I started dollar-cost averaging, I had over 80% profit in the first few years. Three years later, I now have a 40% loss on paper.
- **重回美股干一把大的 · 2025-07-16T15:07:49.000Z**: Hahahaha...
- **要遵守交易纪律 · 2025-07-16T15:07:13.000Z**: How to make money without frequent trading
- **花有重開日 · 2025-07-16T15:05:46.000Z**: High-frequency trading with high volatility can make at least 3 trades a day.
- **变盘时刻 · 2025-07-16T15:03:54.000Z · 👍 4**: Didn't finish reading. For big funds like Buffett's, dollar-cost averaging is definitely more suitable. The limited space in the pond also makes it inconvenient for large funds to maneuver in the short term. However, we should remember that Buffett started with penny stocks. The size of his capital 
  - **金誉** (2025-07-16T16:08:48.000Z): Different capital amounts lead to vastly different outcomes.
  - **变盘时刻** (2025-07-16T16:10:08.000Z): Agree. I remember after making a lot of money from penny stocks, Buffett said: I suddenly didn't know how to trade when my capital got big.
  - **金誉** (2025-07-16T16:11:23.000Z): Profit maximization, do what's appropriate, not just follow the same old routine and overgeneralize.
- **Ludwig. · 2025-07-16T15:03:12.000Z**: Hello sunshine
- **長野原烟花店交易员 · 2025-07-16T15:03:10.000Z**: There are quite a few typos 😓
  - **四十五度阳光** (2025-07-16T16:16:45.000Z): Please understand the helplessness of middle-aged and elderly people haha
  - **長野原烟花店交易员** (2025-07-16T16:17:53.000Z): For OTC funds, they are usually sold at a 10% discount on third-party platforms, such as Tencent's Licaitong.Some even offer zero-fee fund purchases.
  - **四十五度阳光** (2025-07-16T16:21:10.000Z): I didn't buy domestic ones, didn't pay much attention.
- **我在美股开超市 · 2025-07-16T11:19:24.000Z · 👍 10**: If it weren't for frequent trading, my circle would still be at 260. My frequent trading costs have already reached 210.
  - **我在美股开超市** (2025-07-16T11:21:15.000Z): Spent an extra thirty bucks on trading fees, but made back six hundred bucks. How can you recover if you just leave it untouched?
  - **我把祝福送给你** (2025-07-16T22:57:47.000Z): You just got lucky with your bet.
  - **小甜丶** (2025-07-17T15:18:54.000Z): Frequent trading is all about luck.
- **杰西_李佛摩 · 2025-07-16T01:32:08.000Z · 👍 8**: What destroys traders is never the commission fees.
- **Keanlong · 2025-07-15T15:33:47.000Z · 👍 11**: What are you babbling about? What should I do if I buy a speculative stock without stop-loss or take-profit?
  - **四十五度阳光** (2025-07-15T15:44:57.000Z): My long-term fund holding strategy
- **Kevin Durant · 2025-07-15T15:31:25.000Z · 👍 3**: Another hindsight
  - **四十五度阳光** (2025-07-15T15:50:33.000Z): Please read first
  - **Kevin Durant** (2025-07-15T16:05:43.000Z): Now that the stock has risen a lot, a bunch of influencers are happily spreading the news, talking about Charlie Munger and Buffett, acting all high and mighty. Why didn't you post this article a few 
  - **四十五度阳光** (2025-07-15T17:55:08.000Z): I was talking about the pros and cons of long-term holding versus frequent trading. What are you talking about? I didn't post anything telling you what to do.
- **现代大道 · 2025-07-15T15:30:59.000Z · 👍 1**: Makes sense