The arithmetic of costs

For a scalper, the most important calculation happens before any chart analysis: what does each trade cost, and what win rate does that cost demand? This lesson works through the numbers step by step. Once you have done it for your own account, you will know whether a strategy idea is even worth testing.

The two main costs

• Spread: the difference between the bid (sell) price and the ask (buy) price. You buy at the ask and sell at the bid, so every round trip pays the spread once.
• Commission: on some account types, a fixed fee per lot traded, often quoted per side or per round turn (opening and closing together). Accounts without commission usually have wider spreads instead.

To compare them, convert both into pips. On a USD-quoted pair such as EUR/USD, 1 pip on 1 standard lot is worth 10 USD, so a commission of 7 USD per lot round turn is 7 ÷ 10 = 0.7 pips.

Slippage, the difference between the price you expected and the price you got, is a third cost. It is harder to predict and is covered in the next lesson.

Worked example: costs against a 5-pip target

Illustrative figures only; actual spreads and commissions vary by broker, account and market conditions.

• Target: 5 pips. Stop: 5 pips. Both measured as the distance price must move.
• Spread: 1.0 pip.
• Commission: 7 USD per standard lot round turn = 0.7 pips.
• Total cost per trade: 1.0 + 0.7 = 1.7 pips.

Costs are paid on every trade, so they reduce each win and enlarge each loss:

• Net win: 5 minus 1.7 = 3.3 pips.
• Net loss: 5 plus 1.7 = 6.7 pips.
• Cost as a share of the target: 1.7 ÷ 5 = 34%.

On 1 standard lot, that is a net win of 33 USD against a net loss of 67 USD. A trade that looks like an even bet on the chart is, after costs, risking about twice what it makes.

Break-even win rate

The break-even win rate is the share of trades you must win so that, over many trades, wins and losses cancel out. With a target T, a stop S and a cost C per trade (all in pips):

Break-even win rate = (S + C) ÷ (T + S)

For the example: (5 + 1.7) ÷ (5 + 5) = 6.7 ÷ 10 = 67%.

To check it, take 100 trades. Winning 67 gives 67 × 3.3 = 221.1 pips. Losing 33 gives 33 × 6.7 = 221.1 pips. The two cancel exactly.

How the required win rate rises with costs

Keeping a 5-pip target and a 5-pip stop, here is the win rate needed to break even at different cost levels:

Each extra half-pip of cost raises the required win rate by 5 percentage points at this target size. A strategy that wins 62% of the time would be profitable before costs but losing at 1.7 pips per trade.

The same costs on a larger target

Now apply 1.7 pips of cost to a swing trade with a 100-pip target and a 100-pip stop: (100 + 1.7) ÷ (100 + 100) = 101.7 ÷ 200 = 50.85%. The same cost moves the break-even rate by less than 1 percentage point. That is why costs dominate scalping in a way they do not for slower styles.

What you can control

• Know your exact costs. Look up the typical spread for the hours you trade and the commission for your account type, and convert both into pips.
• Trade when spreads are tightest. Spreads vary through the day, as the next lesson explains.
• Consider wider targets. If your method allows a 10-pip target and stop, the same 1.7-pip cost needs (10 + 1.7) ÷ 20 = 58.5% rather than 67%.
• Fewer, better trades. Every trade you skip saves its full cost.

None of this creates an edge. It only tells you how large an edge must be before the strategy can work at all.

Key takeaways

• Convert spread and commission into pips so they can be compared with targets and stops.
• Costs reduce every win and enlarge every loss; a 1.7-pip cost on a 5-pip target is 34% of the target.
• Break-even win rate = (stop + cost) ÷ (target + stop), before slippage.
• At a 5-pip target and stop, every extra half-pip of cost adds 5 percentage points to the required win rate.
• The same cost barely affects a 100-pip trade, which is why costs decide whether scalping can work.