Education · Stage 1 · 07
What it really costs to trade
Everyone compares commissions. Commission is rarely the biggest number, and on its own it tells you nothing — because a cost only means something once you convert it into the unit the market actually moves in: ticks.
Mak · 4 min read · Stage 1, article 7 of 13
The six things you pay
Four are billed to you, one is deducted before you see it, and the sixth is invisible and usually the largest.
| Cost | Charged | Notes |
|---|---|---|
| Broker commission | per contract, each side | Usually quoted as a round turn — in and out. Negotiable at volume. |
| Exchange and clearing fees | per contract, each side | Set by the exchange, identical everywhere. Not something a broker can discount. |
| Regulatory fee | per contract | Small, fixed, and easy to forget when comparing two brokers. |
| Market data | monthly | Charged by the exchange, per exchange. Depth of book costs more than top of book. Article 10. |
| Platform | monthly, or once | Free tiers exist, usually with a higher commission attached. A licence bought outright is cheaper per month and only if you keep trading. |
| The spread, and slippage | every trade | Never invoiced, never itemised, and usually the largest of the six. |
The first three arrive together as one figure on your statement. The next two are fixed monthly costs that have to be spread over however many trades you actually make. The last one is discussed below, because it behaves differently from all the others.
Convert everything into ticks
This is the whole method, and it takes one line of arithmetic:
cost in ticks = total cost of the round turn ÷ the value of one tick
The figures below are an example so the arithmetic is visible, not a quote — put your own broker's schedule into the same two columns.
| NQ — the mini | MNQ — the micro | |
|---|---|---|
| One tick is worth | $5.00 | $0.50 |
| All-in round turn, say | $4.00 | $1.20 |
| Cost in ticks | 0.8 ticks | 2.4 ticks |
| Before you break even, price must move | less than one tick | almost three ticks |
This is the number worth knowing about your own account, and it is the one nobody quotes at you. It also settles an argument people have endlessly: whether a strategy that takes small profits «works». On the micro, a target of four ticks with costs of nearly three is not a strategy with thin margins — it is a strategy that is mostly paying fees.
The cost nobody invoices
In article 1 of stage 4 the spread turned out to be the gap between the best bid and the best offer. If you buy with a market order and immediately sell with one, you buy at the higher price and sell at the lower: you have paid the spread, and no statement will ever show it.
In a liquid contract during the American session, that is normally one tick. It is not always one tick. In the thin hours, around a scheduled release, or when your size is larger than what is resting at the price, you get filled across several levels — which is slippage, and it is the same cost with a worse name.
- Paying to arrive
- A market order buys immediacy and pays the spread for it, every time. Ten round turns a day is ten spreads, whatever your commission happens to be.
- Waiting instead
- A limit order avoids the spread and buys a different problem: it may not fill, and it tends not to fill exactly when the move was real. That is a cost too — it just never appears as a number.
The fixed costs, divided by reality
Market data and the platform are monthly whether you trade or not, so their real weight depends on how often you trade — and the honest arithmetic here is uncomfortable for anyone starting out.
Suppose the fixed costs come to something in the region of a hundred a month. Trade twice a day, twenty days a month, and you have spread them over forty trades. Trade twice a week and the same bill lands on eight. The person who trades less pays more per trade — which is worth knowing before it quietly turns into a reason to trade more.
The only comparison that matters
Not «is this broker cheap». The question is:
What fraction of my typical winning trade goes to costs?
A trader working with forty-point moves and one working with four-tick moves can pay identical fees and be in completely different businesses. The first barely notices them. The second is in a race with the fee schedule, and the fee schedule does not get tired.
Work out your own number before you choose how you want to trade. It rules some approaches out entirely, which is the most useful thing a number can do.