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The costs that eat the edge

The Math of an Edge

Spread, fees and slippage compound against you

Every trade pays a toll before it can win: the spread between bid and ask, any commission (the broker's flat fee for handling the order), and slippage when your order fills worse than you expected. On a swing trade held for weeks that toll is a rounding error. On a scalp aiming for a small move, it can be most of the edge — which is why high-frequency styles need far better execution to survive, and why 'I'd be profitable without fees' is a description of a strategy that is not profitable.

Check yourself

Why do costs hurt scalping far more than swing trading?

  1. Scalpers pay higher fees
  2. The toll is a much larger share of a small target correct
  3. Swing traders don't pay spread

The same few cents of spread is trivial against a $10 move and decisive against a $0.15 one.

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