Trading Requirements

SPW relies on having a low-commission Broker that will process Market on Open Orders

1. Choosing a Suitable Broker

SPW requires a Broker that allows MOO (Market On Open) orders.

“Zero comission” brokers (E-Toro, Robinhood..) do not allow this type of order, and the actual execution price may,and usually will, differ from the official open price. They are not suitable for SPW because the execution price will not coincide with the open price, and this will siginicantly distort the system’s performance. Bear in mind that, even small differences of a few cents in every trade, may significantly degrade the system’s results.

Also, comissions need to be less than 0.1% for every trade. The Broker’s fees should be checked to verify that they charge no more than 0.1% for the expected trade size. For example, if trading $1,000 on each trade, comissions should not exceed $1.

There are many online brokers and it is worthwhile to spend sometime to research which one suits us better. Some interesting broker comparisons can be found in sites such as investopedia, Time, and stockbrokers.com. Since SSO is an ETF (Exchange Traded Fund) , SPW requires a broker that allows to trade ETFs.

Depending on tax-residency, it may be necessary to use a broker that is allowed by the applicable regulations. For EU citizens, you might want to check this review provided by revenue.land.

2. Placing Orders

a) When to Place the Order

MOO orders are typically accepted up to 10 minutes before the Market opens. SPW is updated every market day after the session is closed, so orders can be placed on that very day after close or before 9:20 AM (ET) on the next day.

b) How many shares to buy

Because the placed order will be executed at market price at the time of market Open, the execution price is not known in advance. Therefore, there should be sufficient cash so that the order goes through even if opening price is above yesterday’s close price. In practical terms, it is sufficient to set 5% aside for this purpose.

So, if there is $4,000 in cash available, and yesterday’s close price was $52.5, the number of shares will be:

size = 4,000 x 0.95 / 52.5 = 3,800/52.5 = 72.38 = 72 (discard decimal places)

The order would be:

Buy 72 SSO, price=Market, time of execution=Market Open

3. Alternatives to SSO

If SSO is not tradeable for some reason, such as being an EU resident, an alternative is to choose a basket of individual stocks instead (see cannot trade SSO?) In this case, the cash cushion might need to be increased to 10% and the orders should be sized to use a maximum of 90% of the available cash.