Fees, Slippage, and the Real Cost of Trading
Your trade idea is worth +0.4% per trade. Your fees are 0.1%. Your slippage is 0.05%. You are trading 30 times a month. Do the math, then ask whether you have a strategy or whether you are paying the exchange for the privilege of feeling busy.
The Three Costs You Pay Every Trade
- Commission — explicit fee charged by your broker or exchange
- Spread — the gap between the best bid and best ask, paid silently on every market order
- Slippage — the difference between the price you thought you were going to get and the price you actually got, especially on size
Two of these three are invisible on your statement. You only see commissions on a typical trade confirmation. Spread and slippage hide inside the execution price.
Why High-Frequency Strategies Die First
A strategy that makes 30 bps gross per trade and pays 15 bps round-trip in costs is a 50% efficiency strategy. The same strategy at 10 trades a week instead of 30 might have lower gross return but much higher net.
Trade frequency multiplies costs linearly and edge sub-linearly. The lesson: more trades is rarely the answer. Better trades is.
Crypto vs. Stock Cost Profiles
Major US equity brokers offer commission-free trading on most retail accounts, but spread and slippage still apply. The all-in cost on liquid names is often single-digit basis points.
Major crypto exchanges typically charge 5 to 60 bps per side depending on volume tier. On thin pairs, slippage on a $5,000 order can easily exceed the explicit fee.
If your strategy looks great in equities and breaks in crypto, costs are almost always part of the answer.
How to Estimate Slippage
A quick approach: assume you pay half the typical bid-ask spread on entries and another half on exits, plus 1 to 5 bps for market impact depending on size and liquidity. This is rough, but it is closer to reality than zero, which is what most amateur backtests assume.
If you can, replay your strategy with realistic fees and slippage and see how many of the trades survive. The ones that no longer make sense were never real edges — they were spreadsheet artifacts.
The Net-Edge Calculation
Net edge per trade = gross return per trade − round-trip costs. If net edge × number of trades does not exceed a money-market return by a comfortable margin, you do not have a strategy. You have an expensive hobby.
This is unromantic and exactly the kind of math that separates traders who keep their accounts from traders who do not.