How trading fees and slippage affect strategy profitability
Updated November 9, 2026 · SignalPoint
Most strategies that fail live don't fail because the idea was wrong. They fail because the edge per trade was smaller than the cost of making the trade. Costs are certain; edges are not.
What "costs" includes
- Commissions and fees. Broker commissions, exchange and regulatory fees. "Commission-free" brokers still pass on small regulatory fees on sales.
- Spread. Buying at the ask and selling at the bid. For liquid large-cap stocks this is often a few hundredths of a percent; for small caps, options or thin markets it can be far larger.
- Slippage. The difference between the price your backtest assumed and the price you actually got: the market moves while your order waits, or your order is large relative to what's available.
- Timing differences. A backtest that trades "at the open" or "at the close" assumes a price you may not get. Executing minutes later, or on a partially formed bar, is a cost too, and it can go either way.
Costs are usually expressed in basis points (bps): 1 bp = 0.01%. Costs are paid on both entry and exit, so a "10 bps per side" assumption costs about 0.20% per round trip.
Why small numbers matter
Suppose a strategy averages +0.15% per trade before costs and trades 200 times a year.
| Cost per side | Round-trip cost | Net per trade | Sum over 200 trades* |
|---|---|---|---|
| 0 bps | 0.00% | +0.15% | +30% |
| 5 bps | 0.10% | +0.05% | +10% |
| 10 bps | 0.20% | −0.05% | −10% |
*Simple sum of per-trade returns, as if each trade used the whole account; it ignores compounding and is for illustration only.
The idea didn't change; only the cost assumption did. Any strategy with a small average trade is highly sensitive to costs, and the more often it trades, the more sensitive it is.
Find your break-even cost
Rather than guessing one cost number, ask: how many basis points per side would erase the profit? Divide the net profit before slippage by the total value traded (entries plus exits). If the answer is below a realistic slippage level for what and how you trade, the strategy's profit is not robust.
Then stress-test: re-compute results at, say, 5, 10 and 25 bps per side. A strategy that only works at zero is a backtest artefact.
Reducing costs honestly
- Trade less often, or only when the expected edge is clearly larger than the cost.
- Prefer liquid instruments and sizes small relative to typical volume.
- Use limit orders where suitable, accepting that some won't fill (and that the ones that don't fill may be the best trades).
- Measure real fills against your backtest prices and feed the difference back into your cost assumption.
SignalPoint Strategy Audit reports recorded fees, a 5/10/25 bps slippage stress test and the break-even slippage for your trade history. It is a statistical review of historical trades, not investment advice. Past results do not predict future results.