Who this is for — Anyone backtesting at zero cost. Spread, commissions, and slippage can kill high frequency or small-target strategies.
Slippage and fees are friction on every order: broker tariff, bid/ask spread, difference between clicked and filled price. Net edge = gross − costs — the only metric that counts live.
In plain terms — Market entry tax — you always pay, win or lose.
Components
| Item | What it is |
|---|---|
| Commissions | Fixed or % fee per side |
| Spread | Ask − bid (implicit cost) |
| Slippage | Worse fill vs expected (volatility, size) |
Round-trip = entry + exit — multiply by frequency.
Honest backtest
- Insert 2× stated commissions + fixed slippage per trade
- If profit factor stays > 1.3–1.4 → edge survives
- Scalping: compute break-even in ticks/R after costs
Typical mistake — «Zero fee broker» = widened spread — not free.
Example — Target +0.4R, costs 0.15R/trade → need win rate + payoff covering 37% of target in costs alone.
Summary card
- Rule: punitive costs in backtest.
- Live: track real slippage in journal.
- Pair: trade frequency × cost/trade.
Silver path — Validation module. Index: Silver path.