So it’s late and I’m counting missed points on the PM I took (read: failed 65%) this evening and came across this…
“Moore’s statement about assessing the trader’s performance is best described as: A incorrect, as only commission costs should be included. Only explicit costs such as the £135 commission cost should be included in assessing the trader’s performance. The missed trading opportunity cost is also a result of market movement.”
Remind me again why I’m cramming to memorize all the IS formulas?
If market prices are trending upwards during the trading day, closing price will go up, therefore missed trade opportunity costs are affected by market movements. On the other hand, commission costs are most likely fixed, and do not increase when market prices increase, therefore not related to market movements.
CFAI assumes that commission costs are fixed; in general, commission costs may not be fixed as they are attached as a percentage of market prices traded.