Execution and Order Flow
Traders budget for losses and forget to budget for costs. Yet over a year of active trading, spread, commission and slippage frequently exceed the net result. If you do not measure them, you are running a business without knowing your cost of goods.
The three components
- Spread. The visible gap between bid and offer. Varies by session, by pair and by volatility, and widens exactly when you most want to trade.
- Commission. Fixed and easy to model. Often the honest part of the pricing.
- Slippage. The difference between the price you expected and the price you received. Usually negative on stops and on market orders during news.
Put a number on it
Take thirty recent trades. For each, record the intended entry price, the actual fill, the intended exit and the actual exit, plus commission. Sum the differences in account currency. Divide by thirty. That number is what every future trade costs you before the market does anything at all.
| Style | Trades per month | Typical cost per trade | Annual cost drag |
|---|---|---|---|
| Scalping | 300 | 0.9 pips | Very high — edge must be large and consistent |
| Intraday | 60 | 1.1 pips | Moderate — worth optimising session choice |
| Swing | 12 | 1.4 pips | Low — cost is rarely the binding constraint |
The point is not that scalping is impossible. It is that a scalper needs an edge several times larger than a swing trader to clear the same net return, and most people never do that arithmetic before choosing a style.
Reduce what you can control
- 1Trade the sessions where your pair is liquid. EUR/USD at 03:00 London time is a different instrument from EUR/USD at 14:00.
- 2Prefer limit entries where the setup allows. Paying the spread to get in is a choice, not a law.
- 3Avoid holding through scheduled releases unless the trade is explicitly an event trade.
- 4Compare your fills against a second data source monthly. Systematic negative slippage on both entries and exits is a broker problem, not a market problem.
Build the cost into the plan
When you judge whether a setup is worth taking, subtract the cost first. A trade with a one point two reward-to-risk ratio before costs is frequently a losing trade after them. The cheapest edge improvement available to most traders is simply declining the marginal setups.
You cannot control the market. You can control which sessions you trade, which orders you use and which broker holds your money.
Written by Adrian Vestberg — former interbank FX dealer, now running a two-person discretionary desk.