Expressing trading costs in R: a simple formula

[FXS London Scalper]

Thinking about costs in pips is fine until you compare strategies with different stop sizes. Expressing costs in R fixes that.

Formula:

Cost in R = (spread + commission in pips + average slippage) / stop distance in pips

Worked examples on EURUSD, with total costs of 0.8 pips:

• 4 pip stop: 0.8 / 4 = 0.2R per trade.
• 10 pip stop: 0.8 / 10 = 0.08R per trade.
• 20 pip stop: 0.04R.

So a scalping strategy with a 4 pip stop needs a gross edge above 0.2R just to break even, while a 20 pip strategy with the same costs needs only 0.04R.

Why it matters: it explains why very tight stops are so hard to make profitable after costs, even when the setup itself looks good on the chart. It also shows that a cost saving of 0.1 pips is worth much more to a tight-stop scalper than to a swing trader.

A good habit: put cost in R as a column in your journal, computed from actual fills.

Do you think in pips or in R?