Scalping: why costs decide the outcome
What you learn in 3 minutesA reader who trades for a few pips per position is not mainly trading the market. The reader is mainly trading the cost of each round trip. This lesson shows the arithmetic of 20 trades a day at 3 pips each, against a spread of 1.2 pips, on USD/INR at around 83.2500, so the outcome can be read in rupees before any technique is discussed.
20 trades, 3 pips each, 1.2 pips of spread
| Step | Amount | Note |
|---|---|---|
| Gross movement per trade | 3 pips | The distance from entry to exit, before any cost. |
| Spread per trade | 1.2 pips | The gap between the buy price and the sell price quoted by the broker. |
| Net movement per trade | 1.8 pips | 3 pips minus 1.2 pips. |
| Value of one pip on one standard lot | ₹10 | One standard lot is 100,000 units, and 100,000 x 0.0001 = ₹10. |
| Net result per trade | ₹18 | 1.8 pips x ₹10. |
| Net result for 20 trades | ₹360 | 20 x ₹18. |
| Spread paid across 20 trades | ₹240 | 20 x 1.2 pips x ₹10. |
The broker may round the pip value, quote a slightly different spread at different times, or charge a commission on top. Commission is not included in the figures above. Spreads vary between brokers and between quiet and busy periods, so the numbers here are an illustration, not a quote.
The mistake people make here
The common mistake is to count the 3 pips as the result and ignore the 1.2 pips that was paid to enter and exit. On these figures the spread takes 40 per cent of the gross movement, so a small change in the spread changes the outcome far more than a small change in technique. The reader should write the spread and any commission into the plan before the trade, not after. If the net figure per trade is small, more trades do not fix it; they multiply it.Check yourself
If the spread widens to 1.5 pips and the gross movement stays at 3 pips, what is the net result for 20 trades on one standard lot?
Net per trade is 3 minus 1.5 = 1.5 pips. At ₹10 per pip that is ₹15. For 20 trades, 20 x ₹15 = ₹300.
How many pips of gross movement are needed per trade to keep ₹360 net over 20 trades once the spread is 1.5 pips?
₹360 over 20 trades is ₹18 per trade, which is 1.8 pips net. Adding the 1.5 pip spread gives 3.3 pips of gross movement needed per trade.
What share of the gross movement does a 1.2 pip spread take when the target is 3 pips?
1.2 divided by 3 is 0.4, so the spread takes 40 per cent of the gross movement.