Slippage and Commission: Why They Can Make or Break a Backtest
By Daniel Chau
Founder, NeuroBacktest
Learn how transaction costs affect backtest results and how to model them accurately.
A beautiful equity curve can disappear once you subtract the real costs of trading. Slippage and commission are two of the most common reasons backtests overstate live performance.
What Is Commission?
Commission is the explicit fee your broker charges per trade or per share. Even small fees add up quickly for high-frequency strategies, turning a winner into a loser.
What Is Slippage?
Slippage is the difference between the price you expect and the price you actually get. It is larger in volatile, low-volume, or gap-prone markets. Market orders and large size tend to increase slippage.
Modeling Costs
Use a fixed percentage per trade for liquid assets, or a larger amount for thin markets. Always run a sensitivity test: if a strategy stops working with slightly higher costs, it is not robust.
Frequently Asked Questions
What is slippage in backtesting?▼
Slippage is the difference between the expected fill price and the actual fill price. It is common in fast-moving or low-liquidity markets.
How much commission should I assume?▼
Use the actual broker fee per trade or a conservative estimate, including exchange and regulatory fees if applicable.
Can slippage turn a profitable backtest into a losing strategy?▼
Yes. High-frequency or large-size strategies are especially sensitive to slippage and commission.