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Spread and Commission: Working Out Your True Trading Cost
Working out your true trading cost means adding spread and commission together, per round turn, and expressing it in pounds or pips per lot — not just eyeballing the quoted spread. This lesson builds on Module 9's earlier idea of execution cost as a whole (spread, commission, and swap), and narrows in on the two costs you pay on every single trade: spread and commission.
Most traders can quote a spread. Fewer can tell you what a trade actually cost them once commission is added and the position is closed. That gap matters — it's the difference between a strategy that looks profitable on paper and one that actually is after real-world costs are subtracted.
Why Spread Alone Doesn't Tell You Your True Trading Cost
The spread — the gap between bid and ask — is only half the picture on commission-based accounts. Many brokers, including raw-spread accounts offered by Pepperstone, charge a tight spread plus a separate commission per lot. Others, like standard accounts on IG's own platform, tend to fold the cost into a wider spread with no separate commission line. Neither model is automatically cheaper — it depends on your volume and instrument.
This is why comparing brokers on spread alone is misleading:
- A 0.1 pip spread + $7 round-turn commission can cost more than a 1.0 pip spread with no commission, depending on lot size and instrument value.
- Commission is usually quoted per side (half-turn) or per round turn — mixing these up doubles or halves your real number.
- Spreads move with liquidity and news; a snapshot at 3pm doesn't reflect your typical trading hours.
The only reliable way to compare is to convert everything into one unit — pips or pounds per lot, round turn — and that's what the next section covers.
The Formula: Turning Spread and Commission Into One Number
To get your true trading cost, convert both components into the same unit and add them.
Step-by-step:
1. Convert commission to pips. Take the round-turn commission in account currency, divide by the pip value for your lot size and instrument. 2. Add it to the spread in pips. Spread (pips) + Commission-as-pips = All-in cost per round turn. 3. Convert to pounds if you prefer money terms. Multiply the all-in pip cost by the pip value for your position size.
Worked example (illustrative numbers only):
| Component | Value | |---|---| | Spread | 0.8 pips | | Commission (round turn) | $6 per standard lot | | Pip value (1 lot, GBP/USD) | ~$10 | | Commission in pips | $6 ÷ $10 = 0.6 pips | | True cost | 0.8 + 0.6 = 1.4 pips |
Do this calculation for every account type you're considering, using the actual live spread and commission figures from PipTax's /audit.html cost tool rather than marketing pages — advertised "from" spreads rarely reflect what you'll pay in practice.
Commission Structures: Per Side vs Round Turn
Getting this wrong is one of the most common costing mistakes retail traders make, so it deserves its own section.
- Per side (half-turn): you're charged once to open, once to close — the two charges together are your round-turn cost. If a broker quotes "$3.50 per side," your true round-turn commission is $7.
- Round turn: the quoted figure already covers open and close. A "$7 round turn" commission is the same $7 total as above — but confusing the two labels can make you think one broker is half the price when it isn't.
- Tiered/volume-based commission: some accounts reduce commission as monthly volume rises. Useful for active traders, irrelevant for occasional ones — check where your realistic volume actually sits.
Always ask (or check the fine print): *is this per side or round turn?* When in doubt, contact the broker or check PipTax's /brokers/index.html listings, which flag commission structure alongside spread type.
Instrument and Account Type Change Your True Trading Cost
Your true cost isn't a single fixed number — it shifts by instrument and account type:
- Majors vs minors/exotics: spreads widen significantly on thinner pairs; commission (where charged) is usually flat per lot regardless of pair, so the commission-as-pips portion of your cost shrinks as a proportion on wide-spread exotics and grows on tight-spread majors.
- Standard vs raw/ECN accounts: raw accounts (common on Pepperstone's MetaTrader servers) typically show near-zero spread plus commission; standard accounts fold cost into spread only. Recalculate the true cost for each account type separately — don't assume raw is always cheaper.
- CFDs on indices/shares: commission structures and minimums often differ from FX, so treat each asset class as its own calculation.
Practical habit: build a simple spreadsheet with columns for instrument, spread, commission, lot size, and calculated all-in pip/£ cost. Update it whenever you open a new account type, and re-check it periodically — costs aren't static.
Using Your True Trading Cost to Judge Strategy Viability
Once you have a real all-in cost per round turn, use it as a filter before you risk anything:
- Compare it to your average expected move. If your strategy targets 5 pips and your true cost is 1.4 pips, costs eat roughly 28% of gross profit before you've even considered slippage.
- Scalping and high-frequency strategies are hit hardest — small per-trade edges get squeezed fastest by fixed costs, so the true-cost calculation should come before you commit to that style, not after a losing month.
- Swing and position traders feel it least — a 1.4 pip cost matters far less against a 100-pip target.
- Recalculate at your real trade frequency. A 1.4 pip cost on 200 trades a month is a very different number to the same cost on 10 trades a month — multiply it out over a realistic month to see the total drag.
This is also where the earlier Module 9 lesson on swap cost fits back in: for anything held overnight, add swap to this figure to get a genuine full-cost picture, not just the round-turn number.
Common Mistakes When Estimating True Trading Cost
- Using headline "from" spreads instead of the live figure at your typical trading time.
- Forgetting commission entirely because it's billed separately from the visible spread on the platform.
- Mixing per-side and round-turn commission quotes without checking which one applies.
- Ignoring account currency conversion — pip values shift if your account currency differs from the quote currency.
- Treating cost as static — spreads widen around news and low-liquidity hours; your "true cost" should really be a typical-case average, not a best-case snapshot.
Run your own numbers through PipTax's /audit.html tool with your actual account type and typical lot size — it's built to catch exactly these mismatches automatically.
Conclusion: Make True Trading Cost Part of Every Setup Check
Working out your true trading cost — spread plus commission, converted to one unit, round turn — should be a five-minute check you do before trusting any backtest or strategy, not an afterthought after a disappointing month. It won't tell you whether a strategy will work; the market decides that, and trading always carries the risk of loss. But it will tell you honestly how much of your edge the broker and account type are taking before you even place a trade. Do this exercise for every account and instrument you actually use, keep it updated, and lean on tools like PipTax's cost audit and broker comparison pages rather than marketing headlines when the numbers matter.
Key takeaways
- True trading cost = spread + commission, converted into one unit (pips or pounds) per round turn — not spread alone.
- Convert commission to pips by dividing the round-turn charge by the pip value for your lot size and instrument.
- Always confirm whether quoted commission is per side (double it) or already round turn, to avoid comparing brokers incorrectly.
- Raw/ECN accounts (e.g. Pepperstone's MetaTrader servers) and standard accounts (e.g. IG's own platform) structure cost differently — recalculate true cost separately for each.
- Scalping strategies are hit hardest by fixed spread and commission costs; swing and position trades are affected far less proportionally.
- Use PipTax's /audit.html tool and /brokers/index.html listings for live numbers rather than advertised headline spreads.
Frequently asked questions
- Is a zero-spread account always the cheapest option?
- Not necessarily. Zero or near-zero spread accounts almost always carry a separate commission, and the commission-as-pips figure can be higher than the spread you'd pay on a standard account, depending on lot size and instrument. Always calculate the all-in round-turn cost rather than judging by the spread line alone.
- How do I convert commission into pips?
- Divide the round-turn commission (in your account currency) by the pip value for your lot size and instrument. Add the result to the quoted spread in pips to get your all-in cost per round turn.
- What's the difference between per-side and round-turn commission?
- Per-side commission is charged once when you open and once when you close, so you must double it to get the true round-turn figure. Round-turn commission already covers both legs. Confusing the two can make a broker look half the price it actually is.
- Does true trading cost matter more for some trading styles?
- Yes. Scalpers and high-frequency traders feel spread and commission far more acutely because their target moves are small relative to fixed costs. Swing and position traders, aiming for larger moves, are affected proportionally less by the same cost figure.
- Where can I check live spread and commission numbers instead of estimating?
- Use PipTax's /audit.html cost tool with your actual account type and typical lot size, and cross-check against the broker listings on /brokers/index.html rather than relying on advertised headline figures.
- Should I include swap in my true trading cost calculation?
- For any position held overnight, yes — add swap on top of the spread-plus-commission figure covered in this lesson to get your genuine full holding cost, not just the round-turn execution cost.