When you open a trade and it immediately shows a small loss, nothing has gone wrong. You are looking at the cost of trading. Three things make up that cost: the spread, slippage and fees. None of them is large on a single trade, but over hundreds of trades they decide a surprising share of the result.
The spread
Every market has two prices at any moment:
- the bid, the best price someone will pay to buy from you, and
- the ask, the best price someone will sell to you.
The ask is always a little higher than the bid. The difference is the spread. If you buy at the ask and sell straight away at the bid, you lose the spread. That is why a new position starts slightly negative.
For example, if gold is quoted at 4,025.40 bid and 4,025.70 ask, the spread is 0.30. Buying 10 ounces and closing immediately would cost 10 × 0.30 = $3.
When spreads widen
Spreads are usually tight in busy markets and wide in quiet ones. They tend to widen:
- around major news releases,
- when a market has just opened or is about to close,
- overnight, at weekends and on holidays, and
- in less traded instruments.
Slippage
Slippage is the difference between the price you expected and the price you actually got. It happens because prices move between the moment you send an order and the moment it is filled.
- A market order fills at the best price available right now, which in a fast market may be worse than the price on your screen.
- A stop-loss is usually a market order once triggered, so in a sharp move it can close a little beyond the stop level. This is why we say a stop limits the loss but does not freeze the price. More in what a stop-loss is.
- A limit order fills only at your price or better, so it avoids slippage, but it may not fill at all.
Slippage can also work in your favour. It is simply less noticeable when it does.
Fees and other charges
Depending on the venue and the product, you may also pay:
- Commission: a fee per trade, often a small percentage of the trade's value.
- Funding or overnight costs: charged for holding leveraged positions past a set time. On perpetual futures this is called the funding rate and is paid between longs and shorts at regular intervals.
- Deposit and withdrawal fees: charged by the platform or the payment network.
Always check the cost schedule of the platform you use before you trade.
Why small costs matter
A trader who takes many short trades pays the spread and fees every time. If your typical target is small, costs can eat a large slice of each winner and add to every loser. Trading less often but with better planned entries often helps more than any indicator.
Ways to keep costs down
- Trade when the market is busy. Spreads are usually tightest when major sessions overlap. See forex market sessions.
- Avoid the seconds around big news unless your plan specifically needs them.
- Use limit orders for entries when you are not in a hurry.
- Include costs in your plan. Measure your stop and targets so the trade still makes sense after the spread. Our guide to position sizing shows how.
- Prefer liquid instruments, especially when you are starting out.
In short
The spread is the gap between buying and selling prices, slippage is the gap between the price you wanted and the price you got, and fees are what the venue charges. Each is small, together they are not. Trade busy markets, plan with costs included, and they stay a minor line rather than the reason a good strategy loses money.
Educational content, not investment advice. Trading carries risk, including the loss of capital.