A 3-pip target with a 1-pip spread is not a 3-pip target

[Amanhasnoname]

Do the arithmetic honestly. Buy at the ask, and the position is closed at the bid. With a 1.0 pip spread and a target 3 pips from entry on the chart, the trade needs bid to travel 3 pips from the ask, so the market must actually move 3 pips, and the spread has already cost a third of it if measured against where the mid sits. Put differently, a trade that wins 3 pips gross against mid nets 2 pips after costs.

Now flip the stop side. A stop 3 pips away on a long loses 3 plus the spread, 4 pips, if it triggers on the bid below the ask entry. So the payoff ratio that looks like 1:1 on the order ticket is roughly 2:4 in terms of mid movement, which means the strategy needs a win rate well above 60 percent just to break even.

That is why the same system can be profitable at 0.5 pip spread and a clear loser at 1.2. The edge does not degrade gradually, it falls off a cliff once cost exceeds a fraction of the target.

A useful rule of thumb to test: the spread should stay under 15 to 20 percent of the target. For 3 pips that means 0.45 to 0.6 pips, which is only available in specific hours on specific pairs.

At what spread-to-target ratio does your own system stop making money?