Trading Costs: Spreads, Commissions and Fees

Cost is measured against the size of your move, not in dollars

This is the part that changes how you pick a broker. Take that 1.2 pip round-trip cost and hold it constant.

• A method whose average gross result is 6 pips a trade hands over 20% of everything it makes.
• A method averaging 60 pips a trade hands over 2%.

Identical broker, identical charge, and one trader is paying ten times more of their edge than the other. Cost is only meaningful as a fraction of the move you are trying to capture, which is why a scalping method needs execution that a position trader can be completely indifferent about. It is also why turnover is the single biggest lever you have: halving the number of trades halves the bill without touching the win rate.

The same arithmetic decides whether a strategy is viable at all. A backtest that clears 3 pips a trade before costs is not a strategy, it is a rounding error that has not yet met a spread. Put the real numbers through the profit calculator before deciding a method works.

Where the comparison tables mislead

Advertised spreads are averages, and often averages of the quietest hours. The number that matters is the spread at the moment you actually trade, which for most people is the London or New York open or the minutes after a data release. On EUR/USD a headline 0.8 pip average can be 4 pips at 21:00 rollover and 10 pips or worse in the seconds after a payrolls print.

Three other things the table will not tell you.

• Fill quality. A tighter quote with worse fills is a worse deal, and only your own execution log will show it.
• Inactivity and withdrawal charges. Small, dull, and they land on exactly the accounts that trade least.
• Swap markup. Brokers add a margin to the interbank differential. Two brokers quoting the same spread can charge very different overnight rates.

Cashback and rebate arrangements return part of what you pay, and the rebate calculator will size that for your volume. Be clear about what it is: a reduction in cost, not a source of edge. A losing method with a rebate loses slightly more slowly.

An evening with your own statement

Almost nobody does this, and it takes about an hour.

1. Export the last three months of closed trades. Sum the commission column and the swap column.
2. Add the spread cost: number of round trips multiplied by your typical spread in pips multiplied by pip value.
3. Divide the total by the number of round trips. That is your real cost per trade, and it is usually larger than the estimate you were carrying in your head.
4. Divide the total by gross profit before costs. If costs are eating more than about a third of the gross, the fix is fewer trades or wider targets, not a better entry.

Once you have that figure, build it into the plan rather than treating it as friction to be complained about. A target set at 20 pips with a 2 pip all-in cost is really an 18 pip target, and sizing, stop placement and expectancy all follow from the honest number. Our risk management guide works through where that number belongs in the rest of the arithmetic.