The cost formula for one completed trade
Start with every commission, exchange or clearing charge actually posted for entry and exit. Then add the execution shortfall against a reference price chosen in advance. Subtract that total from gross P&L.
For a round turn, the practical structure is entry fees + exit fees + entry slippage + exit slippage. Platform, data or subscription costs can be reported separately by month or allocated to trades, but they should not be silently mixed with transaction-dependent charges.
Fees, spread and slippage are different things
Commissions and exchange fees normally appear as explicit ledger entries. The bid-ask spread is the difference between the best price offered by a buyer and the best price offered by a seller. Slippage describes how far the actual execution is from a meaningful reference price.
If a market entry is compared with the midpoint when the order arrived, the measured shortfall already includes the spread effect and any additional move before the fill. Subtracting the full spread again would double count part of the cost. A consistent benchmark matters more than a long list of labels.
| Item | Measurement | Typical data source | Common mistake |
|---|---|---|---|
| Commission/fee | Actual amount charged | Broker statement or fill data | Counting entry but not the round turn |
| Spread | Best ask minus best bid | Order book at reference time | Adding it after slippage already captured it |
| Slippage | Direction-adjusted fill minus reference | Order and tick data | Confusing it with general price movement |
| Fixed cost | Monthly invoice amount | Broker or data-vendor bill | Allocating the same charge twice |
A simple example shows when an edge disappears
Suppose 100 completed trades produce $1,000 of gross P&L. In this example, explicit round-turn charges average $2.20 per trade and measured execution shortfall averages $1.80. Total costs are $400, leaving $600 of net P&L.
If the same sample had made only $300 gross, it would be down $100 after identical costs. Those numbers are illustrative, not current broker pricing. The lesson is straightforward: a small gross advantage and high turnover make a strategy especially sensitive to costs.
Break-even questionHow much must the average trade make before explicit charges and realistic execution costs are covered?
Slippage needs a reference price set before the fill
For a buy, adverse slippage means filling above the reference; for a sell, it means filling below it. Convert the difference to dollars with the contract point value and size. For partial fills, use the quantity-weighted average execution price.
Depending on the question, the benchmark can be the midpoint at order arrival, the triggered stop price or a documented decision price. Choosing it after the trade makes the result easy to manipulate. If order and market data are missing, the journal should say that true execution slippage cannot be reconstructed.
- Set the reference method before evaluating results.
- Measure entry and exit separately.
- Combine partial fills with a quantity-weighted average.
- Store instrument, session and order size.
- Do not replace missing order-book data with invented precision.
Compare costs in ticks and as a share of gross edge
Dollar figures make MES, MNQ, ES and CL hard to compare. Cost in ticks shows how much price movement each execution must first earn back. A cost ratio also reveals how much of gross performance disappears before it reaches the account.
CME evaluates liquidity with measures including spread, order-book depth and “cost to trade” for a fixed lot size. That points to an important reality: execution cost varies with the product, time of day, volatility and order size. A monthly average can hide the exact windows in which fills deteriorate.
Sources and further reading
Fee schedules vary by broker, exchange, product and plan. Use current statements and a documented slippage method for your own calculation. Example costs are hypothetical.