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Break-even win rate for a 5 pip target and 4 pip stop once costs are in

On paper a 5 pip target with a 4 pip stop looks friendly. You win more than you risk, so anything above 44.4% wins should make money. That number is 4 divided by 9, the stop over the stop plus the target.

Now add the costs. Say the pair is EURUSD on a raw account with a 0.2 pip average spread and $7 round turn commission per standard lot. On EURUSD a pip on one lot is $10, so the commission works out to 0.7 pip. Together that is roughly 0.9 pip per trade, and I'll round it to 1 pip to allow for a little slippage.

A winner now nets 4 pips instead of 5. A loser costs 5 pips instead of 4. The break-even win rate becomes 5 divided by 9, which is 55.6%.

That is an 11 point jump from a single pip of cost. A strategy that wins 50% of the time goes from looking comfortably profitable to losing about 0.5 pip a trade. Over 300 trades a month at one lot, that is the difference between roughly +$1,500 and roughly minus $1,500 on the same entries.

The bigger the target, the less this matters. With a 20 pip target and a 16 pip stop, the same 1 pip moves break-even from 44.4% to 47.2%. Scalpers live at the small end, which is exactly where costs bite hardest.

Slippage makes it a little worse again. If stops fill half a pip beyond their level on average, which is common enough around data, the loser becomes 5.5 pips while the winner stays at 4 if targets are limit orders. Break-even goes to 5.5 divided by 9.5, about 57.9%. So the realistic hurdle for this setup on a good raw account is somewhere between 55% and 58%, depending on how and when you trade it.

Fairman, adding costs to the 5 and 4 example shows how quickly a friendly-looking ratio changes. With, say, a 1 pip round-turn cost, the effective target becomes 4 and the effective stop 5, so the win rate needed to break even climbs from 44.4% to 55.6%. That is the kind of jump that turns a profitable-looking backtest into a losing live account.

A quick way to keep this in your head: every pip of cost gets subtracted from the target and added to the stop. So the formula for break-even is (stop + cost) divided by (stop + target). With a 3 pip target, 3 pip stop and 1 pip cost, you need 4 out of 6, so 66.7% wins. That is why very tight symmetric scalps are so hard to make work on retail pricing. Even a good entry model rarely holds a two-thirds hit rate once you have a few hundred trades in the sample. The formula also works backwards if you know your win rate.

The cost figure should come from your own fills, not the broker's advertised average. Advertised spreads are usually averages across the whole day, including the quiet hours when you probably aren't trading, and also the busy hours when spreads are tight. If you scalp the London open, pull your actual entry and exit prices for a month and compare them with the mid price at the same second. The real number for your hours might be 0.3 pip or it might be 0.6, and at these target sizes that changes the break-even by several percentage points.

It also changes how you should judge a backtest. Plenty of platforms default to a fixed spread or zero commission. If the test shows a 52% win rate with a 5 and 4 setup, it looks like a winner until you add the cost, at which point it's below the 55.6% line. I'd rerun anything I care about with cost set to at least 1 pip on majors, and closer to 2 pips on crosses like GBPNZD, before trusting it at all. GBPNZD can easily run a 2 to 3 pip spread outside London hours, so for some crosses even that is generous.

One thing that softens it a little is partial exits. If you close half at 3 pips and let the rest run to 7, your average winner might stay near 5, but you pay commission on the full size either way, because commission is charged per lot traded, not per exit. Splitting the exit doesn't save cost. It only changes the shape of the winners. So the break-even sum still has to use the full 1 pip, whatever exit plan you use. If anything, splitting adds a little cost, because the second half often exits at a worse spread later in the move.

A strategy wins 60 percent of the time. Great, right? Not if the average win is 3 pips and the average loss is 6.

The break-even win rate is the share of trades that must win for the strategy to cover costs: loss size plus cost, divided by the sum of win size and loss size, with costs adjusted. With a 3-pip win, a 6-pip loss, and a 1-pip cost per trade, the numbers change fast. Wins become 2 pips net, losses 7 pips net. The needed win rate is 7 / 9, about 78 percent.

Many scalping approaches have high win rates and small winners because they take profit quickly. The danger is that a few large losses erase many small wins, and the costs make it worse.

Looking at win rate alone is misleading. A strategy needs positive expectancy per trade after costs, which depends on the ratio of average win to average loss, not just frequency.

A three-column table in a spreadsheet, win rate, average win net, average loss net, gives the answer in seconds.

Another pitfall is mixing gross and net numbers. A journal showing "average win 4 pips" may be using prices before spread and commission. The same journal with net numbers might show 3.1 pips on winners and 5.2 on losers. The same win rate that looked profitable in gross terms is now losing.

A scalper should compute the break-even rate from net values for each setup separately. Some setups clear the bar comfortably, others sit just above or below it. The ones just below the line tend to be the ones that feel productive but drain the account.

The calculation also shows how sensitive the system is to cost changes. If the break-even win rate is 62 percent and the strategy delivers 64, a small increase in spread could eliminate the edge. A system with a break-even of 48 and a delivery of 55 has a margin of safety.

Revisiting the numbers every few months, since costs change, keeps the picture honest.

Is the break-even win rate for the current setup still reachable once real costs go in?