How Spread and Commission Quietly Erase a "Winning" Strategy

A backtest or a trade log that shows a positive expectancy in pips is measuring one thing: how the strategy did against price movement. Spread and commission aren't price movement — they're a cost paid on every single trade, win or lose, and on a lot of summaries they either don't appear at all or get folded into the numbers as if they're small and constant. They're constant. They're rarely small relative to the edge they're sitting on top of, and a strategy can be genuinely, mechanically profitable on price and still lose money once the cost of entering and exiting is put back in.

What's actually being subtracted

Spread is the gap between the bid and the ask, paid the moment a market order fills. It isn't a fee charged separately — it's baked into the fill price, which is exactly why it's so easy to leave out of a P&L review that's built from entry and exit prices without asking what the quoted price actually was at each end. Commission is the second cost, charged per lot per round turn regardless of whether the trade wins or loses. Both are the same in one respect that matters more than their size: they're paid on frequency, not on being right. A strategy that trades ten times a day pays this cost ten times a day whether nine of those trades are good decisions or none of them are.

Where it hides best

The strategies most exposed to this are exactly the ones that look best on a raw pip count — high win rate, small average win, short holding time. Take a strategy with a 60% win rate, a 5-pip average win and a 4-pip average loss. Gross expectancy per trade is (0.6 × 5) − (0.4 × 4) = 1.4 pips. That's a real edge on paper. Now put back a 1.2-pip spread paid on entry and a commission working out to roughly 0.7 pips per round turn on the lot size being traded — a combined 1.9 pips of cost against a 1.4-pip edge. The strategy didn't get worse. The report was just never measuring the thing that determines whether the strategy makes money.

A strategy with a 40-pip average win and the same cost structure barely notices it. The damage is proportional to how small the edge is relative to the fixed cost sitting on top of every trade — which means scalping and high-frequency setups are structurally the most exposed, not because they're worse strategies, but because they're the ones where 1.9 pips is a large fraction of the number being fought over.

Frequency is the multiplier that makes it visible

A single trade's spread and commission cost looks trivial next to the account balance. It stops looking trivial the moment it's totalled across a month instead of looked at one trade at a time. A strategy placing 300 trades a month at 1.9 pips of combined cost each has paid 570 pips to the broker before a single directional call has been judged right or wrong — often a larger number than the strategy's entire gross profit for the month, and one that never shows up as a line item unless it's deliberately added up rather than absorbed into the fill prices of every individual trade.

What to track instead of raw pips

• Cost-adjusted expectancy per trade, not gross pips or gross R — the number that includes spread and commission on every entry and exit, not just the ones large enough to notice.
• Total spread and commission paid over a period, compared directly against gross P&L for the same period, so the cost is a number on the page instead of an assumption baked into fill prices.
• Cost as a percentage of average win, broken out per strategy and per instrument — the same 1.9 pips means something very different to a scalping strategy than to a swing strategy, and blending them into one account-wide average hides which one is actually exposed.
• Expectancy recalculated at the actual trade frequency, since a strategy that looks profitable at 50 trades a month and unprofitable at 300 isn't two different strategies — it's one strategy whose edge was never large enough to survive being traded that often.

None of this requires a different strategy. It requires the report to include the cost that was already being paid on every trade, instead of a summary built from round entry and exit numbers that quietly assume the price gotten was the price seen on the chart.

Why this is easy to miss in a manual log

A spreadsheet filled in from memory or from a broker's summary screen usually has room for entry price, exit price and result — not the actual bid/ask spread paid on that specific fill, and rarely a running total of commission separated out from the P&L it was subtracted from. getALPHApulls spread and commission from MT5 on every trade as it closes, so the cost is a number in the record instead of something assumed away. That's what lets getALPHA's AI coach tell a strategy with a real edge from one whose entire reported profit is the gap between what the chart shows and what the broker actually filled.