Slippage and commissions: why your real result is never the backtest result
Your real result is never the backtest result. What a round turn costs, what slippage is, and why a 3-to-1 system barely notices what kills a scalper.
The gap has two parts. One is fixed, known in advance, and easy to calculate. The other is variable, occasionally ugly, and impossible to know exactly until it happens. Here is what both are worth, in dollars, on this specific system.
The two costs that separate a model from a statement
Commission is what you pay to have a trade executed: a known number, published before you trade, charged per contract per side. Nothing about it is a surprise.
Slippage is the difference between the price the model assumed and the price you got. Sometimes it is zero. Sometimes it goes your way. Over enough trades it tends to go against you, because the moments when the market moves through your order fastest are the moments your order most needed to be filled.
Backtesting software fills you at a price the software chose. The real market fills you at a price the market chose. That is the whole subject.
Cost is not a percentage of your account. It is a fixed dollar amount per trade. So the only question that matters is how big your average trade is relative to that amount. A system aiming at three times a wide stop and a system aiming at $10 a winner pay the same toll, and one of them can afford it.
What a round turn on a micro contract actually costs
A "round turn" is one contract in and back out: an entry and an exit. It is the unit costs are quoted in, and it stacks up from three separate places.
| Component | Who charges it | Roughly, per micro round turn |
|---|---|---|
| Broker commission | Your futures broker | The largest slice, and the only part you can shop for |
| Exchange fee | CME Group | A fixed per-side fee on the micro index products |
| NFA assessment fee | National Futures Association | A few cents, per side, non-negotiable |
| All-in | All three combined | about $1.90 per contract, round turn |
Note what is not in there: platform fees, market data, and your VPS if you rent one. Those are monthly costs that do not scale with how much you trade. Keep them in a separate column in your head.
What that does to every trade
Commission is not the whole toll. On top of the $1.90 per contract round turn, the published run charges one tick of slippage on every trade. A tick is worth $0.50 on the micro Nasdaq and $1.25 on the micro S&P, so the assumed cost per contract, in and back out, is $2.40 on MNQ and $3.15 on MES.
That is a deliberately unflattering assumption rather than a measured one. Both products trade a one-tick spread for most of the session, so charging a full tick on a round turn assumes the market moves against the order nearly every time. The cost estimate errs on the expensive side rather than the flattering one, which is the direction an honest number should lean.
The arithmetic, written out
The whole thing reconciles from the average trade, which is worth seeing because it shows how thin the per-trade edge really is.
| Step | Calculation | Result |
|---|---|---|
| Commission already inside it | Per contract, round turn | −$1.90 |
| Slippage already inside it | One tick on the micro Nasdaq | −$0.50 |
| Toll per contract, round turn | Commission plus a tick | ≈ −$2.40 |
Seventy-five dollars a trade, after the toll. That is the entire edge, and it survives a $2.40 toll comfortably. A system whose edge is six dollars a trade would not, which is exactly the situation a lot of higher-frequency systems quietly live in.
Why the backtest is published net
Because a gross figure is the easy one to produce and the easy one to flatter. Leave the commission field at zero in the Strategy Analyzer, run the same strategy over the same period, and a bigger number prints. Nothing about it is technically false, and nothing about it is useful either: it describes trading in a market with no brokers in it.
A number with the costs already inside it is harder to publish and much harder to dress up. That is the reason to publish it that way.
What slippage actually is, and when it shows up
Slippage is what happens when the price you wanted is not the price available at the instant your order reaches the exchange. There are only a few situations where it is material, and it is worth knowing which ones apply to you.
- A thin book. If only a few contracts rest at the best price and you want more, you take the next price up, and the next. On micro index futures during the US morning this is rare. On a quiet product at 2 AM it is the normal state of affairs.
- Data releases. In the seconds around a scheduled release the book empties, refills, and prices jump levels rather than walking through them. Everyone knows the number is coming, so nobody leaves size resting into it.
- Stop orders in a violent move. This is the big one. A stop is not a price guarantee: it is an instruction that becomes a market order the moment it is touched. If the market gaps through your level, you get filled wherever the market is, and your risk on that trade is briefly larger than planned.
- Contract roll. Around quarterly expiration, liquidity migrates from the front contract to the next one. Trading the wrong one is self-inflicted slippage.
Two things offset it. That window has the deepest liquidity of the day by a distance: the volume that arrives with the opening bell is enormous, which is the difference between a fast market and a thin one. And the system does not fire on the bell itself; it reads what happens after, which is a calmer place to transact than the first two hundred milliseconds. None of that eliminates slippage. It is why the allowance is three dollars and not twenty cents.
Why a wide stop and a 3-to-1 target barely notices
This is the part most people get backwards. Cost sensitivity has almost nothing to do with how good a system is and almost everything to do with how big its trades are.
| Style | Typical trade size | Cost per round turn | Cost as a share of the trade |
|---|---|---|---|
| Scalper, 4 ticks on a micro | ≈ $5 | ≈ $2.40 | ≈ 48% |
| Intraday, 20 ticks on a micro | ≈ $25 | ≈ $2.40 | ≈ 10% |
A scalper hunting four ticks hands most of the edge to the toll booth, and one tick of slippage on one leg wipes out the trade. A system with a wide stop and a target three times wider still is playing a different game: a bad fill makes a trade slightly worse, it does not turn a winner into a loser.
This is the practical reason a 3-to-1 reward-to-risk structure is worth having even though it clears breakeven at a 25% hit rate rather than a flattering one, which is the argument in what a trading bot actually is. The wider the trade, the less friction matters. And friction is the one thing in trading you can count on.
Four ways to keep your own costs down
- Shop the broker rate, once. Commission is the only component you can negotiate, and the spread between a cheap futures broker and an expensive one is real money over a thousand trades. Do it before you start.
- Trade the liquid contract. Front month, roll when volume rolls, stay in products with real depth. Cleverness about instrument selection is usually slippage in disguise.
- Do not add trades. The most expensive habit is manually adding entries the system did not take. Every discretionary trade pays the same toll with none of the tested edge behind it.
Frequently asked questions
Is slippage always bad for me?
No. Slippage is a deviation, and it goes both directions: sometimes you get filled at a better price than the model assumed, which is called positive slippage. Over a large number of trades, though, the average tends to run slightly against you, because your orders are most likely to be filled instantly precisely when the market is moving away from you. Assume it is a small net cost and plan for it, rather than hoping it nets to zero.
Why not just use limit orders and avoid slippage entirely?
A limit order guarantees your price but not your fill. If the market never trades back to your level, you simply do not get in, and the trades you miss will disproportionately be the ones that ran hardest in your direction. Exits are worse: a stop has to become a market order or it is not a stop at all, and refusing to accept a bad fill on a stop means accepting an unlimited loss instead. Slippage is the price of certainty about being in and out.
Do commissions get worse when I trade more contracts?
Commission is charged per contract, so two contracts cost twice as much as one. But the profit scales the same way, so the percentage stays flat. What can change is slippage: a larger order may need more than the size resting at the best price and fill across several levels. On micro index futures at one to five contracts that effect is negligible; it becomes real at institutional size, not here.
How do I know my broker's real all-in rate?
Ask for the rate per side including exchange and NFA fees, in writing, for the specific micro contract you will trade, and then check it against a real filled trade on your statement once you start. Advertised commission rates frequently exclude the exchange and regulatory components, which makes the headline look better than the charge. The number to write into the calculator is the all-in one.
Educational content, not investment advice. Trading futures involves substantial risk of loss and is not suitable for every investor. Any reference to Algomyth results is hypothetical, simulated over historical data, and shown in full on the performance page; past performance does not guarantee future results.
What would you have made?
Pick a start date, a capital and your markets, and run them against the record of the engines, priced at today's point values. Hypothetical, honest, and yours in thirty seconds.
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