Round-trip costs

This lesson explains how to measure the full cost of a trade from entry to exit, how to express it as a fraction of R, and why hidden costs matter more than the headline spread. It is designed for someone who has already chosen a broker and wants to know whether the advertised low commission actually leads to lower total cost.

What round-trip cost includes

Round-trip cost is everything you pay to open and close one trade:

• Spread: difference between bid and ask at entry and again at exit.
• Commission: per trade, per lot, or per turnover, depending on the broker.
• Overnight financing or swap: charged when positions are held across the settlement cutoff.
• Slippage: difference between expected fill price and actual fill price.
• Currency conversion: deposit and withdrawal fees, plus conversion spread if your account currency differs from the instrument currency.
• Tax: capital gains tax or other settlement costs that reduce net profit.

A broker that advertises zero commission usually makes money on the spread or the swap. A broker that advertises tight spreads may charge high overnight financing. The only way to know the real cost is to measure it on your own instrument and session.

Measure your own round-trip cost

Protocol:

cost_round_trip_USD = spread_USD + commission_USD + (swap_USD × number_of_nights) + slippage_USD
cost_in_R            = cost_round_trip_USD / 1R

1. Open a position and record the entry fill price and entry cost.
2. Close the position and record the exit fill price and exit cost.
3. Add all costs: spread, commission, swap, and slippage.
4. Divide the total cost by your 1R.

Example: 1R equals 100 units. Spread costs 4 units, commission 3 units, swap 1 unit, and slippage 2 units. Total round-trip cost is 10 units, or 0.10R. Twenty such trades cost 2R before the first winning trade.

Hidden costs that do not appear on the chart

• Withdrawal fees: some brokers charge a fixed fee or a percentage for transferring money out.
• Currency conversion: if you deposit in PLN (Polish złoty) and trade in USD, every conversion has a cost. On frequent trading, this can exceed commission.
• Tax treatment: depending on account type and instrument, tax may be withheld at source or settled annually. Net profit is not the same as platform profit.
• Platform fees: some platforms charge data fees, inactivity fees, or custody fees.

A market order at the open pays more slippage than a limit order; feed the average into expectancy.

Cost comparison table

Detailed comparisons: CFD vs futures and CFD vs stocks.

When cost makes a setup unprofitable

A setup can look profitable on a demo account and still lose on a live account if costs are higher than expected. The break-even win rate increases with cost. If your setup has an average win of +2R and average loss of -1R, the theoretical break-even win rate is about 28.6 per cent. Add a round-trip cost of 0.15R and the break-even win rate rises to about 37 per cent. If your actual win rate is 35 per cent, the setup is profitable before costs and unprofitable after costs.

required_winrate = (1 + cost_in_R) / (1 + R:R)

The same mechanism is described in the lesson Expectancy and drawdown.

Cost says do not trade when:

1. Round-trip cost reaches 0.5R or more.
2. Cost times planned entries exceeds your daily loss limit.
3. You have not opened the symbol specification.
4. The plan assumes perfect fills during macro data.

Common mistakes

• Comparing brokers by spread alone.
• Ignoring swap on positions held for more than one day.
• Assuming zero commission means zero cost.
• Forgetting currency conversion on cross-currency accounts.
• Not measuring slippage on stop-loss execution.

Exercise

Choose one instrument and one session. Execute ten round-trip trades on a demo account or measure ten historical fills. Record spread, commission, swap, and slippage for each trade. Calculate average round-trip cost in units and as a fraction of 1R. Compare the result with the broker’s published cost table. Daily loss limit in R: Daily limit and drawdown.

Spread versus commission: what to optimise

Low commission with wide spread can cost more than high commission with tight spread. The optimal choice depends on your holding period and trade frequency. A day trader who opens and closes positions within minutes pays spread twice per trade and may benefit from tight spread even with a small commission per lot. A swing trader who holds for days or weeks pays spread twice but commission once, and may benefit from low commission even if the spread is slightly wider.

To compare, calculate the total cost per trade for your typical holding period. If the broker offers a volume-based commission tier, estimate your monthly volume and check which tier you actually reach. Many traders stay in a higher tier than necessary because they did not calculate the breakeven volume.

Swap and overnight holding

Swap is the interest rate differential applied to overnight positions. On some instruments it is positive, on most it is negative for the side you are holding. If you trade a trend following strategy that holds positions for several days, swap can become a significant cost. Some brokers offer swap-free accounts for certain clients or instruments; check whether the condition matches your profile before assuming swap is unavoidable.

A practical way to measure swap cost is to record the overnight charge on a single position for three consecutive nights. Multiply by the average holding period of your strategy. If the average trade lasts five days and the nightly swap is 0.02R, swap adds 0.10R per trade before you even consider spread and commission.

Currency conversion and cross-currency accounts

If your account currency differs from the instrument currency, every profit and loss is converted at the broker’s rate. Some brokers use a rate close to the interbank market; others add a markup. The markup is often invisible because it is embedded in the conversion rate rather than shown as a separate fee.

To measure it, compare the broker’s conversion rate with the mid-market rate at the time of deposit or withdrawal. The difference, applied to the full amount, is your conversion cost. On a 10,000-unit deposit with a 0.5 per cent markup, the cost is 50 units. If you deposit and withdraw once per month, that is a fixed overhead. If you deposit frequently, it becomes a variable cost that scales with turnover.

Tax as part of execution cost

Tax treatment depends on account type, instrument, and jurisdiction. In some jurisdictions, tax is withheld at source on each sale. In others, you settle annually based on net profit. The effective tax rate reduces the net result of every winning trade, and it should be included in expectancy calculations.

A simple way to include tax is to reduce the average win by the effective tax rate. If your average win is +2.5R and the effective tax rate is 19 per cent, the after-tax average win is +2.025R. That number enters the expectancy formula directly. Ignoring tax makes a strategy look better than it is.

Building your own cost model

The most reliable cost model is built from your own data, not from the broker’s marketing page. Record the following for every trade:

• Date and instrument
• Entry fill price and exit fill price
• Spread at entry and exit
• Commission
• Swap or overnight financing
• Slippage on entry and exit
• Currency conversion cost, if any
• Tax withheld, if any

At the end of the month, sum each category and divide by the number of trades. The result is your real average round-trip cost. Compare it with the broker’s published table. If the real cost is higher, find out why: different instrument, different session, or hidden fees.

When to change broker based on cost

Changing brokers is costly: time, learning curve, and possible differences in execution quality. Before switching, make sure the cost difference is material and persistent. Run the same measurement protocol on the new broker’s demo account for at least twenty trades. If the average round-trip cost is lower by at least 0.05R and the execution quality is comparable, the switch may be justified. If the difference is smaller, the switch is likely driven by marketing rather than maths.

Common questions

Is 0.2R of cost per trade a lot?

It means 20 percent of the potential risk disappears in costs on every entry and exit. Acceptable on rare swings; usually fatal in scalping, where you pay it a dozen times a day.

Where do I find spread and swap?

In the broker's symbol specification, in the contract details. Swap is quoted separately for long and short, so calculate it for the side you actually trade.

Can slippage be eliminated?

No, it can only be limited: limit orders and liquid sessions reduce it. Measure it in your journal and treat it as part of the cost.

Why measure cost at all if the strategy works anyway?

Because 'it works' is often a conclusion from a few trades in which cost had not yet taken its share. Cost as a fraction of R tells you whether the result comes from an edge or from a good run.