The same 0.3 pip stop slippage at 4, 8 and 15 pip stops, measured in R and in dollars

[Fairman]

The same 0.3 pip stop slippage at 4, 8 and 15 pip stops, measured in R and in dollars

Take one average slippage on stop orders, 0.3 pips, and see what it does at three stop sizes. The account is $10,000 and every trade risks $100, with a pip at $10 a lot.

4 pip stop: 2.5 lots. Slippage costs 2.5 x 0.3 x $10 = $7.50, which is 0.075R.
8 pip stop: 1.25 lots. Slippage costs $3.75, which is 0.0375R.
15 pip stop: 0.67 lots. Slippage costs $2.00, which is 0.02R.

Those losses only apply to trades that end at the stop. With a 50% win rate and a 1.5R target, the base expectancy is 0.5 x 1.5 minus 0.5 x 1 = 0.25R per trade. Half the trades are stops, so the slippage reduces expectancy by half of each figure:

4 pip: 0.0375R, which is 15% of the edge.
8 pip: 0.019R, 7.5% of the edge.
15 pip: 0.01R, 4% of the edge.

So the same fill quality takes a bite four times larger from the tight stop. The reason is simple: slippage is a fixed number of pips, and the stop distance is the denominator. If your strategy needs 4 pip stops, you can't treat slippage as a rounding error, and its measured value belongs in the plan before any edge is claimed.

A trader with 15 pip stops can ignore a 0.3 pip slip, but they should still look at it before a news release, since the number there is often ten times higher.

[Fairman]

Check the same table with a different slippage, say 0.1 pip on a very good broker and 0.8 pip on a poor one. At a 4 pip stop that is 0.025R and 0.2R per stop. With a 50% hit rate, the poor fills take away 0.1R of a 0.25R edge, so 40% of it. Then the choice of broker can matter as much as the choice of strategy. The 15 pip stop, under the same 0.8 pip slip, loses 0.053R per stop and 0.027R per trade, around 11% of the edge. The tight stop is where the broker's execution quality is paid for or lost.

[Fairman]

A related point is the order of magnitude of slippage on different order types. Market entries and stop entries can both slip in both directions, though the average often leans against you. Stop losses slip against you by definition, since they fill after the level is passed. Take profits don't slip against you. If you want a single number for the plan, use the average stop-out slippage in pips, and for entries use your measured average on market orders. Keep them separate in the sheet, since a blended number hides which one is causing the damage.

[Fairman]

To bring the numbers back to dollars, compute the monthly bill. Suppose 4 pip stops at 2.5 lots, 100 trades a month, 50 of which end at the stop. The slippage is 50 x $7.50 = $375 a month, or 3.75% of the account. On 15 pip stops with 0.67 lots, the same 50 stops cost $100, or 1%. That difference of $275 a month can equal what a decent strategy earns, which is why a tight stop style that looks efficient in R on the chart can look poor in the account after execution.

[Fairman]

A cheap way to cut the cost is to avoid trading when slippage tends to be worst, instead of changing the stop. If your journal shows that stop-outs in the 30 minutes around scheduled news average 1.2 pips of slip, against 0.2 pips at other times, then skipping those half hours removes over half of the slippage bill. Count it as 50 stops: if 8 of them fall in news windows at 1.2 pips, the cost there is 8 x 1.2 x 2.5 x $10 = $240, more than the other 42 stops combined at 0.2 pips, which come to $210. Check your own numbers before copying mine.

[Shadow Trader]

A trader can call the direction of a news spike correctly and still lose money. The arithmetic explains why.

Spreads at the time of release might be five to ten times normal. Entry slippage adds another pip or two. Exit slippage adds more. A move of ten pips in ten seconds looks great on the chart but delivers three or four pips after costs. The fill prices on the platform often differ from the visible chart even more than that.

Then add the dropped orders. When the platform rejects an order, the trade is missed entirely. Missed trades tend to be the winners, since the fastest moves are the ones that overwhelm the server.

Compare this with a trade taken twenty minutes later. The move is smaller, but spread and slippage are normal, and the net result is often higher.

A calculation of expected net profit per trade, subtracting actual costs measured on news events, usually shows the difference starkly.

The lesson isn't that news can't be traded. It's that the apparent size of the move overstates what's capturable.

A worked example makes it concrete. A pair spikes ten pips in ten seconds. The trader enters at the moment the spike is visible, which is probably two pips into the move. Slippage takes another pip. The spread of eight pips at that moment is paid on the way in. Now the entry is effectively eleven pips from where the move started, and the target is just a few pips beyond.

On the exit, the spread is still wide, so another few pips are lost on closing. The "ten-pip move" nets close to nothing, or a small loss.

Even a perfect read of direction can't overcome that structure. The edge comes from spread and slippage compression, which only happens later.

The practical alternative is to trade only after spreads return to within about 150 percent of their normal level. The moves available then are smaller but the net is better.

What was the real cost, in pips, of a fast news trade once everything was measured?