Trading charges explained: brokerage, STT and slippage
A strategy's edge is measured before costs, but every trade pays them. Learn the main charges and why frequent trading needs a bigger edge.
Key takeaways
- Every trade pays brokerage, taxes and small exchange and regulatory charges, on the buy and again on the sell.
- Slippage is the gap between the price you saw and the price you got.
- Rules that trade often need a bigger edge per trade to clear the same costs.
- Judge any backtest after costs, and know that your broker's real charges can differ.
Brokerage
Brokerage is what the broker charges for placing the order. It is often a small flat fee or a percentage of the trade, whichever is lower, and varies from broker to broker.
Securities transaction tax and other charges
Securities transaction tax (STT) is a government charge on the value of the trade, and it applies whether the trade wins or loses. On top of that come small exchange and regulatory charges and the taxes charged on some of them. Rates depend on the type of trade and change over time, so check your broker's current schedule.
Slippage
Slippage is the difference between the price you expected and the price at which the order actually filled, because the market keeps moving while the order is executed. It is harder to see than a fee, but it is real, and it is larger in thinly traded stocks and fast markets.
The round trip
A complete trade, the buy and the later sell, pays these costs twice. On a small trade they can add up to a noticeable part of the position before the strategy's edge has had any chance to show up.
Why this matters for strategy choice
A rule that trades often needs a larger edge per trade just to cover costs every single time. A rule that trades rarely pays less in total. That is why a backtest without costs can make a busy rule look far better than it is.
In SmartPaperDesk
Backtests and paper trades apply estimated charges based on standard published rates, so results are shown after costs. They can differ from your broker's actual bill, so treat them as a realistic estimate, not an exact figure.
Questions people ask
Are trading charges the same for every broker?
No. Taxes and exchange charges are common, but brokerage and other fees differ by broker and plan. Check your own broker's schedule.
What is slippage?
It is the gap between the price you saw when you sent the order and the price at which it actually filled. It grows in thin stocks and fast-moving markets.
See a backtest after costs on the free plan
Keep reading
SmartPaperDesk is an educational paper-trading tool. Examples use a made-up Stock A.
For educational purposes only. This is not investment advice. Past performance does not guarantee future results.