Spreads, commissions and the real cost of trading

Every trade starts at a small loss. Understanding where costs come from is the difference between a strategy that works on paper and one that works in practice.

The spread

The spread is the gap between the price you can buy at and the price you can sell at. On EUR/USD during busy hours it is often a fraction of a pip to about one pip. On less traded pairs, at quiet times or around major news it can widen to many pips.

Commissions

Some accounts charge a fixed commission per lot in exchange for tighter spreads. Compare the total: spread plus commission, converted into pips per round trip.

Overnight financing

Positions held past the daily rollover pay or earn interest based on the rate difference between the two currencies, minus the broker’s markup. Over weeks this can add up, in either direction.

Slippage

When the market moves quickly, orders can fill at a worse price than requested. Stop-loss orders are especially exposed during news releases and weekend gaps.

Why costs matter more for short-term trading

A strategy that aims for 10 pips per trade and pays 1.5 pips in costs gives up 15 percent of every winner and adds to every loser. One that aims for 200 pips barely notices. Every backtest in our strategy library lets you change the cost per trade; try raising it from 1.5 to 3 pips and watch how the results change.