The break-even ratio: how much of the target the spread eats

[Amanhasnoname]

A spread of 1 pip against a 5 pip target looks small. It isn't. The trade has to move 1 pip in your favour before it even reaches zero, which means the spread consumes a fifth of the target.

Now add commission. On a raw spread account at 0.1 pip plus 0.7 pip round-trip commission, the effective cost is about 0.8 pips. Same 5 pip target, and the cost is 16 percent of it.

Here's the part many miss: the required win rate depends on this ratio. With a 1:1 reward-to-risk and a 0.8 pip cost on a 5 pip target, the strategy needs well over 50 percent winners just to break even. Shrink the target to 3 pips and the required win rate shoots up.

So before testing any scalping idea, divide the all-in cost by the target and by the stop. If either ratio looks above roughly 15 percent, the edge needs to be remarkable.

A handy sanity check: write the all-in cost in pips on a sticky note next to the screen, then ask before every entry whether the expected move is at least six or seven times that number. Setups that cannot clear that bar rarely survive a long sample.

What cost-to-target ratio does your current setup run?