Course 4

Fees, Slippage and compounding

What you will learn :

  • Small Fees make you lose some $

  • Slippage Fees make you lose some $

  • Compounding the money lost adds up

One of the best trading platform out there is Bybit, because they charge very low fees, and sometimes no fee at all!

The very first algo strategy that got me very excited and very hopefully, was Maddrix, hence the name I gave to this. Maddrix was basically buying and selling under specific conditions, and taking systematically profit at let’s say 1.2% OR a loss, around 0.8%.

See below this absolutely magic chart – with 12 wins in a row. This was actually the best performance ever recorded on it. So, if you use 100% of your account on each trade, and you compound it, you could transform $1,000 into $1,153. Moreover, if you were using let’s say 3x leverage, you would turn that $1,000 into $1,528. Pretty cool right?

What was the edge? Well, the goals were to get a 50% win rate (at the time, I didn’t know about the course #1, or anything else I teach you here), AND to have my wins 0.4% bigger than my losses. Overtime, and with compounding, the results were great.

One particularity of this strategy is that I never had the stop loss on the exchange. Why? Because many times, there is a fake move, lasting one or two minutes, sweeping the SL and then going back to normal. If I had a SL on the exchange, I would obviously get stopped. So my algo was waiting on the current bar to close, to validate the signal and if it was under the SL, then it would send a market order to exit.

After running it for a few weeks, I could not understand why my 3Commas transaction report would show negative red trades, while on my TradingView algo, everything was in green. I did some digging and I found 3 things:

1 - first of all, each time I would exit the trade, a market order is generated and I lose 0.075% (Bybit trading fee).

2 - Second, the time spent between TradingView sending the signal to 3C and then 3C to send the signal to Bybit, was enormous – by the time the order arrived on the exchange, the price had moved a little bit. Another 0.07 or 0.08% at least against me.

3 - Sometimes, if this would happen exactly during a massive move, the order book would get super full, and then instead of getting the Long or Short contract at the price I want, I would get whatever is available from other traders … another 0.05+ % against me. Have you ever noticed your exact entry or exit price, does not match exactly the wick you see on the chart? Or, exactly the limit you set up? This is what I am talking about – when there are too many people, too much volume, many transactions, you only get what you get from the system.

So, to recap, at each exit at loss (which was in theory 50% of the time), I would lose at least and on average 0.06% x 3 = 0.18%. Point #1 is the fee and Points #2 and #3 are what I called my slippage.

**Side note – usually on the exit at win, I would get point#2 and point#3 against me.

You may think, 0.18% is nothing right? (on another side note, did you know that 3Commas had this devil feature of accounting for a 0.15% trading fee when it trades? The goal is to “take into account the trading fee”, so basically if you don’t pay attention, you don’t see it and don’t calculate it. You grow your account with 0.15% less.). Back to our subject, 0.18% lost is not a lot right?

That is correct, 0.18 is nothing. But look below when you actually plug the numbers:

I simulated 12 trades in a row. This is a 50% win rate, and I lose on average 0.18% per trade.

In the RAW green column (LEFT SIDE), you can see what your strategy should get you. These are the numbers from your TradingView Strategy code. Total is 2.37% for 12 trades at 50% win rate. ($1000 + 1.20%) then ($1012+1.20%) etc.

In the FEE+SLIP. Orange column (RIGHT SIDE), you can see what you actually get in reality, running this algo live: 0.18% for 12 trades at 50% win rate.

The gain is theory 1.20% minus slippage/fee 0.18% = 1.02%.


Do you understand now how it can be extremely hard and long to actually find a strategy that makes money over the long run? You have to find the system, simulate and then run it live over time.

We have covered in another course the power of compounding, when it is in our favor. I hope that in this post, you have understood that the compounding can go against you. Indeed, the reason why this strategy doesn’t work over time, is because at each trade, we compound the trading fee and the slippage.

Conclusion: your strategy should be able to cover for these discrepancies and prevent them from compounding.