Account size and the minimum cost of a trade

[Fairman]

Account size and the minimum cost of a trade

A small account faces a structural problem in scalping: the minimum trade size. If the smallest lot is 0.01 and the account is 500 dollars, a 10 pip stop risks about 1 dollar, or 0.2 percent. That's fine.

But costs scale differently. A commission of 0.07 dollars per side on a 0.01 lot looks tiny, yet on a 1.5 pip scalp, it amounts to a significant fraction of the profit. Rounding rules or minimum commissions can make it worse.

Spread is proportional, but for small accounts, the commission structure matters more. A micro account with a spread-only model may cost more per pip than a standard account with commission at the same size.

A calculation worth doing: total round-turn cost in dollars, divided by the pip value, gives cost in pips. Compare it to the average target. If it's more than a fifth, the edge needs to be strong.

Scaling up changes the math, which means results at small size don't predict results at larger size.

On the account size used here, what's the all-in cost per round turn in pips?

[Fairman]

Small accounts face a higher relative cost per trade. Minimum lot sizes, minimum commissions and fixed fees can make each trade more expensive as a percentage of the account. A hypothetical example: on a $500 account trading 0.01 lots, a $0.10 commission per side is small, but if the broker has a minimum commission of $1 per trade, the cost is ten times higher relative to the position. Checking minimums is important for small account traders. Some brokers offer cent accounts or nano lots specifically to reduce this problem for very small balances.

[Amanhasnoname]

I ran a $400 account for about four months to see how much the structure mattered, and the all-in cost was higher than I expected. On a raw-spread account the round turn on EURUSD at 0.01 lot came to about 0.9 pips once I added the commission to the average spread, which sounds fine until my average target was only 4 pips. That put roughly a fifth of every gross winner into costs, and my edge nearly disappeared.

What I found was that the cost per pip is only part of it. Rounding made small trades awkward: at that size one pip is worth about ten cents, so a stop of 7 pips risked 70 cents, and even a 0.3 pip slippage made a visible dent in the outcome. A single cent-account test with a wider target did better simply because the fixed element was smaller.

My advice is to log your actual all-in cost for a fortnight on demo, in pips, before you decide that a target is realistic.