A journal column for cost as a share of gross profit

[Fairman]

A journal column for cost as a share of gross profit

One number I added to my journal recently is total costs divided by gross profit before costs. It's been more informative than I expected.

Each trade row has the gross result in pips, the spread paid, commission converted to pips and any slippage. At the end of each week I sum the costs and divide by the sum of gross positive results.

Here's an illustrative week to show the arithmetic, not my actual numbers. 60 trades, gross result +40 pips, costs 0.9 pip per trade so 54 pips, net result minus 14 pips. Gross winners total 180 pips, so costs are 30% of gross winners.

The point of the ratio is that it shows how much of the edge goes to the broker. For a scalper taking small targets, 30% isn't unusual, and over 40% probably means the targets are too small for the costs or the trade frequency is too high.

When I compare weeks, changes in the ratio tell me whether a change in results comes from the trades themselves or from costs. A week with the same gross but higher costs, like when spreads are wider in a volatile market, shows up straight away.

I also split it by pair. On some crosses the ratio is much higher than on EURUSD, which explains why those trades feel like hard work even when the entries are good.

[FXS HongKong Scalper]

A useful number. It shows clearly whether costs are the main issue or the strategy itself. If costs take more than a third of gross profit, it may be better to aim for larger targets or trade fewer, higher quality setups. Tracking the ratio by pair and by session can also reveal where costs are highest. For many traders the Asian session shows a higher ratio on major European pairs, because spreads are wider and moves smaller, which suggests focusing on pairs more active in those hours.

[Fairman]

If you trade with a raw spread account, it's easy to forget commission because it's charged separately. Some platforms don't show it in the trade's profit column, only in the account history. Pulling the commission into the journal row next to each trade makes the ratio accurate. Without it, the cost share looks a lot lower than it really is. Many journals built by hand only use the profit column, so this is a common gap. An export from MT5 includes commission in its own column, which makes it easy to bring in. Adding a formula to convert it into pips per trade completes the picture.

[Fairman]

The ratio also helps with broker comparisons. If you move part of your trading to a second broker, comparing the ratio for the same strategy over a month tells you more than comparing advertised spreads. A broker with tighter spreads but worse slippage might come out worse. The ratio captures both without needing separate checks. The ratio also adjusts automatically for trade size and frequency, so you can compare a month of small trades with a month of larger ones on the same footing. It's one of the few journal numbers that doesn't need much interpretation. Higher is worse, lower is better.

[Fairman]

Over time it's useful to track the ratio in a simple chart. A rising ratio means costs are taking more of your edge, either because of the market, the broker or your trading. Catching that early, before it shows up as a losing month, gives time to adjust targets or trade fewer, better setups. A spreadsheet line chart is enough. Plotting monthly ratio and monthly net result together shows whether bad months are driven by costs or by the trades. If the ratio is steady and results drop, the edge is the issue. If the ratio rises and results drop, look at costs first.

[Fairman]

One caution: the ratio is noisy on small samples. With 20 trades, a couple of big winners change it a lot. I'd look at it monthly rather than weekly for decisions, and use the weekly number only as a warning sign. Combining it with average gross per trade helps separate cost problems from edge problems. A small number of trades also makes the ratio swing on a single bad fill. Using a minimum of 50 trades before drawing any conclusion helps keep things in perspective. A rolling ratio over the last 100 trades smooths the noise without hiding real changes.