Expressing trading costs in R: a simple formula
Posted: Sat Oct 31, 2026 7:12 am
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:
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?
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.
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?