Spread, commission, swap
Every trade costs money before price has gone anywhere at all. Three lines of expense, right here.
Spread, commission, swap — what it is?
The spread is the difference between the buy and the sell price. You pay it at entry: the trade opens already slightly in the red. That's not a loss, it's the cost of access to the market.
Commission is the fee to the broker or the exchange, usually a percentage of volume. Swap is the fee for holding a position overnight, and it can be either positive or negative.
Individually these are pennies. Over hundreds of trades, costs become the main factor: a strategy with positive expectancy before costs can turn out to be losing after them.
Spread, commission, swap — how it is built?
Check it like this: take your average profit in pips and subtract the spread plus commission. If less than a third is left after subtracting, the strategy is feeding the broker, not you.
Spread, commission, swap — common mistakes
Calculating returns without costs. On M15 the spread eats a noticeable part of every trade.
Trading during widened-spread hours — at session opens and on news.
Increasing the number of trades hoping for profit: costs grow linearly, the edge doesn't.
Ignoring swap when holding a position for weeks.
Related to
Glossary
- spread
- the difference between bid and ask. Your cost of entering a trade.
- commission
- the fee a broker or exchange charges for execution, usually a percentage of the size.
- exchange
- a venue for trading cryptocurrencies.
- volume
- the number of trades or contracts in a period.
- swap
- the fee for carrying a position overnight. It can be negative or positive.
- position
- an open trade.