Spread and Slippage: The Real Cost of Every Trade

Spread cost is fixed per trade, so its impact scales inversely with target size. A one-pip spread against a ten-pip scalp target consumes ten percent of the gross profit before anything else; against a hundred-pip swing target it is one percent.

This is the underlying reason scalping is harder than it appears. Higher trade frequency multiplies a fixed cost, so a scalping edge must clear a much higher bar than a swing edge to survive the friction.

Spreads are not constant. They widen when liquidity thins — around major news releases, at the daily rollover, over weekends, and during quiet hours between sessions.

The awkward part is that they widen exactly when volatility invites you to trade. A pair with a routine 0.8-pip spread can jump to 15 pips in the seconds around a rate decision, which is enough to turn a well-planned trade into a loss on entry alone.

Slippage cuts both ways in theory, but in practice it is asymmetric against you. Market orders during fast moves fill worse; stop losses triggering in a cascade fill worse; limit orders in a fast move do not fill at all.

The practical defences are to avoid market orders during scheduled high-impact releases, to use limit orders for planned entries where a missed fill is acceptable, and to size positions so that a few points of adverse slippage does not materially change the outcome.

When evaluating a strategy, include spread, slippage and commission in every trade. An edge of two pips per trade is not an edge if the round-trip cost is 1.8 pips.

This matters on evaluations because costs are charged against your balance and count toward drawdown. Frequent trading with a thin edge can drift into a drawdown breach purely on friction, without a single genuinely bad trade.