Quantprove Glossary / Execution
3 min read

Trading Costs

Every commission, spread, and fee that eats your edge before you get paid.

Charly del SolCo-Founder

Trading costs are everything the market and your broker take before you keep a profit, commissions, the spread, swap and slippage. Each one looks tiny on a single trade. Stacked across hundreds of trades a year, they decide if your strategy survives or not. The more often you trade, the more they matter.

What actually eats your money?

4 main leaks. Commission, a flat or per share fee your broker charges each way. The spread, the gap between bid and ask you pay just to get in and out. Swap, the overnight cost of holding leveraged positions. And slippage, the fills that come in worse than you planned. Add them up per round trip and you get your real cost to trade, which is almost always bigger than the one commission you were looking at.

Why do costs decide who survives?

Because they hit every single trade, win or lose. A +0.3R edge sounds healthy until 0.1R of cost turns it into +0.2R, a third of your edge gone before you've done anything wrong. High frequency systems live and die here. Trade 500 times a year at an extra tick of cost each and it compounds into a heavy drag. The slower you trade and the bigger your average winner, the smaller costs will be.

How do you deal with them?

Measure them first, most traders never do. For each trade, compare the price you wanted to the price you actually got, then add the commission and any fees on top. That difference plus the fees is what the trade really cost you. Then put that number into your backtest so the edge you test is the edge after costs. Cheaper brokers and instruments help, but chasing zero commission while ignoring a big spread is a classic trap, since the spread is often the bigger impact. The honest test is simple: does the strategy still make money after every cost is applied?

Frequently asked questions

Everything taken from a trade before you keep a profit: commissions, the bid ask spread, swap or financing fees, and slippage. Small each, they add up fast across many trades.
Depends on the instrument and how often you trade, but the spread is the sneaky one, since it's baked into every entry and exit while people hunt low commissions.
They hit every trade, win or lose. A +0.3R edge with 0.1R of cost is really +0.2R. The more often you trade and the smaller your average win, the more they eat.
Always. A backtest without costs shows an edge you can't keep. Put your real per trade cost in, so your Edge Score reflects what you'd truly bank.
  • R Multiple — Every trade measured against what you risked, where a full stop is always minus 1R.
  • Slippage — The gap between the price you expected and the price you actually got.
  • Live vs Backtest — The gap between how a strategy looked in testing and how it performs with real money.
  • Forward Testing — Running a strategy on new market data in real time, before you risk real money on it.

Turn trading knowledge into evidence.