Technical Updates of the Rebalancing Application 2

The rebalancing application creates basket files containing all the necessary instructions for Trader Workstation to purchase a whole portfolio in one single order. That means you do not have to be buying each stock separately, proving useful for individuals with large portfolios. Our application saves your time and helps you avoid any unnecessary typing errors. You can find out more about how the application works in the previous article on fractional shares.

The recently implemented update takes into account the fees paid to the Interactive Brokers platform. Let’s say we are going to invest in the S&P 100 Balanced Strategy. Therefore, we buy the 20 most undervalued and sell the 20 most overvalued stocks when building our first portfolio, making 40 different trades in total. The Interactive Brokers platform usually charges USD 1 for executing each trade, making the total cost of these initial transactions approximately USD 40.

When you want to rebalance your portfolio by the current report from StockPicking Lab, you will make somewhere between 0 to 80 new trades. The total number of trades depends on the number of positions in the rebalancing report whose value differs from the value in your portfolio or are new positions. Up until now, the rebalancing application did not take account of the brokerage fees paid for each transaction. Let’s say you had a long position in the Ford Motor Company stock (ticker F). The total value of your long position was USD 4,500, but according to the current report, the new value equalled USD 4,515. The old logic of the rebalancing application purchased USD 15 worth of Ford stock to maintain an ideally balanced portfolio. This USD 15 transaction cost USD 1 in fees, which is 7% of the whole transaction. That was probably not an ideal solution because the Ford stock would have to rise in value by over 7% since this last rebalance to make this transaction profitable.

We updated the application by adding a new logic for rebalancing. The difference between your current position and reported position now have to exceed USD 50. As a result, you will never pay more than 2% of the price of traded shares in brokerage fees. Now, your long position worth USD 4,500 is maintained until the new desired value for this position exceeds USD 4,550.

The purpose of this update was to reduce the brokerage fees and also to improve rebalanced portfolio’s overall performance.

Want to know more about our rebalancing application? Feel free to contact us for more information!