Building Automated Trading Strategies October 2018 | Page 27

The Cost of Trading
Trading cost matters, especially if you plan to implement an intraday trading
strategy, which involves opening/closing several positions on a daily basis.
These are the most important sources of trading cost:
(1) Trading Spread and Trading Commissions
The trading spread and commissions are very important for intraday
strategies, which involve the execution of a great number of daily trades. In
general, ECN brokers offer tighter spreads and lower commissions than
Dealing-Desk Firms.
(2) Slippage
Slippage refers to the deviation in pips between the actual execution price
and the expected execution price. Again, ECN brokers offer lower slippage on
order execution than Dealing-Desk Firms.
(3) Overnight Cost
Refers to the cost when carrying positions overnight (SWAP charges). This
type of cost involves only swing or position strategies and it is irrelevant for
intraday strategies.
(4) Deposit Fees
Depending on the fund method, some brokers may charge some small fees
on deposits or withdrawals. Usually they charge about $20 on withdrawals.
(5) Inactive Fees
Some brokers may charge fees on trading accounts that remain inactive more
than 6 months.
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