All-In Trading Cost

Your all-in trading cost is the total of everything trading costs you, expressed in a way you can compare with your profits: per trade, per unit of risk and per year. It combines explicit costs like commissions with implicit costs like spreads and slippage, plus fixed costs like platform and data fees. Calculating it once is eye opening; tracking it over time is how professionals keep strategies profitable.

The components#

Cost per trade#

Add per trade explicit and implicit costs, plus holding costs for the average holding period.

Cost per unit of risk#

Expressing cost in R, the amount risked per trade, shows how much of each trade's expected result goes to costs.

Cost in R = Cost per trade ÷ Risk per trade

If the trader above risks $80 per trade, costs are $5.70 ÷ $80 = about 0.07R per trade. If the strategy's expectancy is +0.25R per trade before costs, net expectancy is about +0.18R. Costs consume more than a quarter of the edge. See Expectancy.

Cost per year and per account#

Annual cost = Cost per trade × Trades per year + Fixed costs per year

Cost per turnover#

Turnover is the total value traded divided by account size. Funds track cost per unit of turnover to compare strategies: a strategy that turns over its capital 50 times a year needs a much larger edge per trade than one that turns over twice. See Signal Turnover, Breadth and Neutralization.

Using all-in cost to make decisions#

• Choosing markets: compare the all-in cost of the same strategy across instruments.
• Choosing a broker: compare total cost for your activity, not headline commissions. See How to Choose a Broker.
• Choosing a style: if costs consume most of your edge on short timeframes, longer holding periods may suit you better.
• Setting realistic goals: your gross results must exceed your annual cost before you make a cent.
• Backtesting: use your measured all-in cost in tests. See Costs and Slippage in Backtests.

Frequently asked questions#

How do I calculate my total trading cost?#

Add commissions and fees, spreads, slippage and holding costs per trade, multiply by your number of trades, and add fixed costs such as platforms and data.

What is a reasonable trading cost?#

It depends on your strategy. The key test is cost as a share of your average profit per trade or your expectancy; if costs take a large share, the strategy is fragile.

Why express costs in R?#

Because it shows directly how much of each trade's expected result is lost to costs, regardless of position size or market.