Scalping: why costs decide the outcome
What you learn in 3 minutesScalping means taking many small trades, often aiming for a few pips each time. That makes the spread and the commission the largest single part of your result, not the chart pattern. This lesson works out, in shillings, what is left after 20 trades of 3 pips on EUR/USD when the spread is 1.2 pips.
20 trades of 3 pips with a 1.2 pip spread
| Step | Amount | Note |
|---|---|---|
| Pip value on one standard lot | KSh 1,085 | One pip on a standard lot is 10 units of the quote currency (100,000 x 0.0001); at EUR/USD 1.0850 that is 10 x 1.0850 = 10.85 US dollars, converted at the same rate to KSh 1,085. |
| Gross pips per trade | 3 pips | The target you are aiming for before any cost. |
| Spread cost per trade | 1.2 pips | The broker's quoted spread on EUR/USD at the time of the trade. |
| Net pips per trade | 1.8 pips | 3 minus 1.2. |
| Net result per trade | KSh 1,953 | 1.8 pips x KSh 1,085. |
| Net result over 20 trades | KSh 39,060 | 20 x KSh 1,953, before commission. |
| Same 20 trades, no spread | KSh 65,100 | 20 x 3 pips x KSh 1,085, for comparison only. |
| Share of the gross result lost to the spread | 40 per cent | 1.2 divided by 3. |
Commission, swap or financing charges, and any slippage are charged on top and vary between brokers. Some brokers quote a wider spread on EUR/USD than 1.2 pips, and some charge a commission instead of a wider spread. Check the exact figures on your own account statement.
The mistake people make here
The common mistake is to count the 3 pips as profit and ignore the 1.2 pips paid on entry. On 20 trades a day that gap is KSh 26,040 of the gross figure, and it is gone before commission. Instead, write down the spread and the commission for your instrument first, subtract them from the target, and only then decide whether the remaining number is worth the effort. If the net figure is small, the technique cannot rescue it.Check yourself
You take 15 trades of 4 pips on EUR/USD with a spread of 1.5 pips. Using KSh 1,085 per pip on a standard lot, what is the net result before commission?
Net pips per trade are 4 minus 1.5 = 2.5. Per trade that is 2.5 x KSh 1,085 = KSh 2,712.50. Over 15 trades: 15 x KSh 2,712.50 = KSh 40,687.50.
If the spread in that example were 2 pips instead of 1.5, how much would the 15 trades lose compared with the first answer?
Net pips fall to 4 minus 2 = 2. Per trade: 2 x KSh 1,085 = KSh 2,170. Over 15 trades: KSh 32,550. The difference is KSh 40,687.50 minus KSh 32,550 = KSh 8,137.50.