Round-turn cost: why commission quoted per side is misleading

[Fairman]

Round-turn cost: why commission quoted per side is misleading

A quoted commission of 3.5 dollars per side per lot sounds small. Then the round turn gets calculated at 7 dollars, and the spread comes on top. For a scalper with a 4 pip target, the cost structure matters more than almost any entry refinement.

Convert everything to pips for each trade. On EUR/USD, one pip per lot is 10 dollars, so 7 dollars in commission equals 0.7 pips. Add a 0.3 average spread and the total friction is a full pip. That is a quarter of a 4 pip target before the market does anything.

Now compare systems. A strategy with an average win of 4 pips and a 50 percent win rate looks fine on paper. After a pip of friction, the expectancy drops sharply. Cut the win to 3 pips and the same win rate can go negative.

The takeaway is to always view targets net of costs, and to set a minimum target at some multiple of friction, such as five times, before a setup is even worth considering.

What cost ratio does a setup need to clear before it gets traded?