Scalping: why costs decide the outcome
Cost per round trip in rupees
A reader in Mumbai opens a chart of USD/INR at 83.2500 and decides to buy. The screen shows a bid of 83.2494 and an ask of 83.2506. The gap between those two prices is the spread, and here it is 0.0012 rupees, which market convention calls 1.2 pips. The reader pays the ask on entry and will receive the bid on exit, so the spread is paid once per round trip.
For one standard lot of USD/INR, a pip is usually valued at ₹10 by many brokers, though this figure varies between brokers. At 1.2 pips, the spread costs 1.2 times ₹10, which is ₹12 per round trip. If the reader also pays a commission, that amount is added on top, but commission is left out of the arithmetic here because it varies by broker and account type.
The reader who targets 3 pips of gross movement is aiming for ₹30 per trade before costs. After the ₹12 spread, the net is ₹18 per trade. That ₹18 is the figure that matters, not the ₹30 on the chart. The gross number is the market's movement; the net number is what remains after the cost of doing business.
Spread as a share of the target
The spread does not feel large until it is compared with the target. A 1.2 pip spread against a 3 pip target takes 1.2 divided by 3, which is 0.4, or 40 per cent. The reader keeps 60 per cent of the gross movement. If the target were 10 pips, the same spread would take 12 per cent. The smaller the target, the larger the share the spread takes.
This share is why scalping is a cost problem before it is a technique problem. A reader who improves entry timing by half a pip gains half a pip. A reader who finds a broker with a spread of 1.0 pips instead of 1.2 pips gains 0.2 pips on every round trip. Over 20 trades, that 0.2 pip difference is 4 pips, or ₹40 on one standard lot. The cost change is certain; the timing change is not.
Spreads are not fixed. They vary between brokers and between quiet and busy periods. A spread of 1.2 pips at 83.2500 may become 1.5 pips when news is released or when liquidity is thin. The reader cannot control that, but the reader can measure it and decide whether the target still makes sense at the wider spread.
Trade count and net outcome
Twenty trades a day at 3 pips gross and 1.2 pips spread gives 20 times ₹18, which is ₹360 net. If the spread widens to 1.5 pips, the net per trade becomes 3 minus 1.5, which is 1.5 pips, or ₹15. Twenty trades then give ₹300. The gross movement did not change; only the cost did, and the outcome fell by ₹60.
A reader who wants ₹360 net at the wider spread needs a different gross target. ₹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 per trade. The reader must now find 3.3 pips where 3 pips was enough before. More trades do not fix a thin net figure; they multiply it.
The arithmetic also shows what happens when the net per trade is very small. If the spread is 1.5 pips and the gross target is 1.6 pips, the net is 0.1 pips, or ₹1 per trade. Twenty trades give ₹20 before any commission. One wider spread or one commission charge can turn that into a loss. The reader should write the spread and any commission into the plan before the trade, not after.
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.
Doing it once, step by step
The reader is about to work through the cost arithmetic once, in order, using the figures on this page.
- 01
Write down the spread
Look at the bid and ask for USD/INR around 83.2500. Subtract the bid from the ask to get the spread in rupees. Convert that to pips using the pip size for the instrument. Write the number down before looking at any target.
- 02
Convert the spread to rupees per lot
Multiply the spread in pips by the pip value for one standard lot. On this page that is 1.2 times ₹10, which is ₹12. If the broker charges a commission, add that amount separately. The total is the cost of one round trip.
- 03
Subtract the cost from the gross target
Take the gross movement in pips that the reader is aiming for. Subtract the spread in pips. The result is the net movement per trade. Multiply by the pip value to get the net in rupees. If the net is small, the trade is mostly a cost trade.
- 04
Multiply by the number of trades
Multiply the net rupees per trade by the number of trades planned for the day. Twenty trades at ₹18 net gives ₹360. Redo the sum with a wider spread, such as 1.5 pips, to see how the total changes. The difference is the cost sensitivity of the plan.
- 05
Check the gross target at the wider spread
Divide the desired net total by the number of trades to get the net per trade. Add the wider spread to get the gross movement needed. On this page, ₹360 over 20 trades needs 1.8 pips net, so 1.8 plus 1.5 equals 3.3 pips gross. Compare that with the original 3 pip target.
- 06
Decide before the trade, not after
Write the spread and any commission into the plan before entry. If the net figure per trade is small, more trades will multiply it, not repair it. The reader can then choose to wait for a wider target or to trade less often.
The mistake most 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.
Questions that come up next
Why is the spread paid once per round trip rather than twice?
A round trip is one entry and one exit. On entry the reader buys at the ask, which is the higher of the two quoted prices. On exit the reader sells at the bid, which is the lower. The difference between those two prices is paid once across the whole position, not on each side separately.
How does the pip value change with a smaller lot size?
The ₹10 per pip figure is for one standard lot of USD/INR. A mini lot is one tenth of that, so a pip is worth roughly ₹1, and a micro lot is roughly ₹0.10. The spread in pips stays the same, but the rupee cost falls with the lot size. The share of the target taken by the spread does not change with lot size.
What happens to the net result if commission is added?
Commission is charged per trade or per lot and is separate from the spread. It reduces the net figure by its own amount, so the ₹18 per trade in the example would fall. Commission varies between brokers and account types, so no single figure applies. The reader should add the actual commission to the spread before judging whether a target works.
Does a wider spread always mean a worse outcome?
A wider spread raises the cost of each round trip, so the net per trade falls if the gross target stays the same. To keep the same net, the reader needs more gross movement per trade. A wider spread is not automatically a reason to stop, but it changes the arithmetic the reader must meet.
Can more trades make up for a small net figure per trade?
More trades multiply the net figure, whether it is positive or negative. If each trade nets a small positive amount, more trades raise the total, but so does the total cost. If each trade nets a small negative amount, more trades deepen the loss. The per-trade net has to work before the trade count is increased.
How can a reader measure the spread before placing a trade?
The bid and ask are shown on the trading platform beside the chart. Subtracting the bid from the ask gives the spread in rupees, which can be converted to pips. Watching that gap at different times of day shows how it moves. The reader can then decide whether the planned target still leaves a sensible net.
The words used on this page
- Spread
- The gap between the bid price and the ask price quoted at the same moment. It is the cost of entering and leaving a position once. A wider spread means a larger cost per round trip.
- Pip
- A small unit used to measure movement in a currency pair. For USD/INR, one pip is 0.0001 rupees. A move from 83.2500 to 83.2501 is one pip.
- Round trip
- One complete trade, from opening a position to closing it. The spread is paid once across the round trip. Commission, if charged, is also counted within it.
- Gross movement
- The distance the price travels in the reader's favour, measured in pips, before any cost is subtracted. It is the figure shown on the chart. The net figure is what remains after the spread and any commission.
- Standard lot
- A fixed position size used as a unit in currency trading. For USD/INR, many brokers value one pip on a standard lot at about ₹10. This figure varies between brokers and should be checked on the platform.
- Commission
- A separate charge made by some brokers on top of the spread, usually per trade or per lot. It is not part of the spread. Because it varies by broker and account type, it must be added to the cost before the net is judged.
What to take away
- The spread is paid once per round trip and comes out of the gross movement before anything else.
- At a 3 pip target and a 1.2 pip spread, the spread takes 40 per cent of the movement, so the net is ₹18 per trade on one standard lot.
- A wider spread or an added commission lowers the net per trade, and more trades multiply whatever the net already is.
- Spread and commission belong in the plan before the trade, and both vary between brokers and between quiet and busy periods.