Who this is for — Anyone who wants to avoid the gap between theoretical performance and real result, especially on frequent strategies or illiquid instruments.
Slippage and fees are inevitable execution costs. In backtests they are often underestimated, but live they can absorb a large part of the edge — even nullify it.
In plain terms — The market does not always fill you at the ideal price and the broker does not work for free: if you ignore these costs, you are measuring an imaginary strategy.
Bronze prerequisite — Before this lesson: trading-journal, trade-result, trading-mistake. See bronze-path.
Where impact is greatest
The effect grows when:
- operating frequency is high;
- targets are short relative to the stop;
- the instrument has wide spread or low liquidity;
- you trade during news or very volatile opens.
Practical rule: the smaller the average edge per trade, the more costs matter.
Example — Setup with +0.18R average gross and 220 trades/year. Inserting realistic average slippage and full commissions, expectancy drops to +0.03R: still positive but at the operational limit.
Correct integration in tests
- Use conservative costs, not optimistic ones.
- Differentiate costs by instrument and time of day.
- Compare gross and net metrics.
- Revalidate periodically with real execution data.
Card
- What it is: combination of worse execution price (slippage) and broker/exchange costs.
- When to use it: in every backtest, forward test, and performance review.
- Typical mistake: using "brochure" costs instead of actually observed costs.
Silver path — Module: Validation. Part of silver-path.