Spread Cost Calculator
Calculates the cumulative spread cost across a defined trading frequency, lot size, and average spread. Reveals the structural drag on the account before any consideration of strategy edge.
This page covers the calculation; it is not trading advice.
How this calculation works
Spread cost per trade = average spread (in pips) × pip value (in account currency, at the position's lot size).
Spread cost per week = trades per week × cost per trade. Annualised = weekly cost × 50 trading weeks (typical, accounting for holidays).
The result is the gross cost layer the strategy must overcome before producing any positive return. It is independent of win rate, average win, or directional accuracy — every trade pays the spread regardless of outcome.
Variable spread accounts pay the spread that prevails at the moment of trade execution. The 'average spread' input should reflect the actual blended average across the trader's entry timing pattern, not the broker's published minimum during peak liquidity.
Formula
- Cost per trade = average spread × pip value
- Annual cost = trades per week × cost per trade × 50
- As percentage of starting equity = annual cost ÷ starting account equity × 100
Worked example
EUR/USD, 1 standard lot per trade, average spread 1.2 pips, 20 trades per week, $10,000 USD account.
Pip value at 1 standard lot EUR/USD on USD account = $10.
Cost per trade = 1.2 × $10 = $12.
Cost per week = 20 × $12 = $240. Annual cost = 50 × $240 = $12,000.
As percentage of starting equity = $12,000 ÷ $10,000 = 120% of starting equity per year in spread alone.
Cutting trade frequency to 10 per week halves the cost to $6,000 (60% of equity). Cutting average spread to 0.5 pips (a tighter broker or different account type) further halves the cost to $3,000 (30% of equity).