Fees are charged by the exchanges, and are based on total position size.
For a list of Exchange fees, see here:
Fees being based on position size is a large part of why many traders are shocked by the large fees on their trades when they begin scalping.
Commonly when scalping, trades will have much smaller Stop Losses compared to trades taken when trading higher time frames.
The reason for this is to match the account risk.
If you have a $10,000 account, and want to risk 1% of that, all Position Sizes will be calculated so that if your Stop Loss is to be hit, it will lead to a $100 Loss.
We'll explore that further below, first I want to explain why Scalping usually has a smaller Stop Loss percentage.
The difference in Candle Size across timeframes
Candles can often look quite similar across different timeframes, some traders even use these "fractals" to trade very successfully.
However, while the shape of candles and charts may look similar, where they differ is in the values of those candles - their absolute height and relative percentage differences.
We can see that here -price action is quite similar across both timeframes. A Higher High forms, followed by a short downtrend culminating in a Lower Low that goes on to a new High - one that breaks the initial Higher High.
These two moves, while looking quite similar in shape, differ enormously in size due to being across different timeframes.
The Low to High of the 1 minute timeframe move is 0.58%.
The similar Low to High on the Daily's comes in at 28.54% - a whopping 49x the size.
Stop Loss Differences
Imagine two trades, identical in entry price and Risk to Reward (R:R), differing only in the timeframe they were taken on.
One a Scalp on the 1m timeframe, the other a higher timeframe trade.
The Scalp will likely have much smaller percentage differences from Entry to Stop Loss & Take Profit, on account of the setup being based on much smaller candles.
Using the same price action as above, we can actually see a fantastic example of this.
If both trades had been taken on the first Bullish move after the new LL had formed, with the Stop Loss then placed under the recent Low and the Take profit absolutely nailing the top of the move, we get this:
1 minute (Scalp) Trade
Daily (Higher Timeframe) Trade
Both trades come in beautifully at about a 7.1:1 R:R, so we should make the same on both trades right?
Wrong.
While the raw profit on both trades will be around the same, roughly $710 ($100 Risk x 7.1 R:R), what we haven't taken into account here is the position value and the resultant fees.
Position Size & Position Value
You'll often hear me talk about position value as being something distinct from position size.
The difference is position size is often measured in contracts, which makes it a very un-intuitive value to use in explanations.
If I talk about a position size of 100 contracts, or 1 lot in Forex, that tells you nothing about what the position is actually worth without going and getting more information.
You can't do maths on a contract number without some form of conversion factor to give it value in a currency.
That's where Position Value comes in.
Position Value is what a position is actually worth.
In Forex for example, a position might have a size of 1 Lot which just means 100,000 units of the base currency (first in the pair).
So 1 Lot of EURUSD has a position size of 1 Lot or 100,000 units - 100,000 EUR.
But for any calculations to be done on it, it needs to have a value.
We can convert that 100,000 EUR position size to USD or any other currency to get the position value, as long as we know the price of the Euro against that currency.
So if EURUSD is trading at 1.07971, meaning each USD buys 1.107971 Euro, our 1 Lot position size has a position value in USD of $92,617.46.
We can do the same with cryptocurrencies or any asset.
On OKX, 1 contract of BTCUSD is worth 0.01 BTC.
So if we enter a trade with a position size of 10 contracts, we have a position size of 0.1 BTC.
We can give this a position value by converting to a currency, let's stick with USD.
If BTC is currently trading at $26,085, our position size of 0.1 BTC has a position value of $2,608.5 USD.
Why is Position Value Important?
Position value is what is actually used to determine position size.
As explained in the introduction to this article, if you have a $10,000 account, and want to risk 1% of it, all Position Sizes will be calculated so that if your Stop Loss is to be hit, it will lead to a $100 Loss.
So let's say you decide to take a trade with a 4% Stop Loss.
We know that a 4% Loss of your position value needs to correspond to a $100 loss (1% of your account).
So we can calculate your position value by using the formula
4% x Position Value = $100
Position Value = $100 / 4%
Position Value = $2,500
This way, if your 4% Stop Loss is hit, you'll lose 4% of $2,500 which is a $100 loss (1% of your $10,000 account).
We can then convert this to a position size.
Let's say BTC is trading at $25,000.
We know we need a $2,500 Position value, which is equal to 0.1 BTC.
We can then use 0.1 BTC or 10 contracts (again due to OKX's 0.01 BTC contract size) as your position size.
Larger Position Values when Scalping
Going back to our two timeframe comparison, we had a 0.07% Stop Loss on the Scalp trade, and a 3.45% Stop Loss on the Daily timeframe trade.
We can then use these to calculate the Position Values needed for each trade to achieve our $100 risk (1% of account balance).
Scalp Trade
The scalp had a 0.07% Stop Loss, so we know for correct risk management, 0.07% of our position value at entry must equal $100.
We can then calculate our Entry Position Value as:
0.07% x Entry Position Value = $100
Entry Position Value = $100 / 0.07%
Entry Position Value = $142,857.14
Higher Time Frame Trade
The Daily timeframe trade had a 3.45% Stop Loss, so we know for correct risk management, 3.45% of our position value must equal $100.
We can then calculate our Entry Position Value as:
3.45% x Entry Position Value = $100
Entry Position Value = $100 / 3.45%
Entry Position Value = $2,898.55
How does this correspond to higher fees?
Fees are charged on position value.
In crypto, fees are typically charged per order - meaning once on entry, once on exit.
In Forex, fees are more commonly charged on the position - meaning one charge for the entire trade.
In most cases, fees are relative to position size (and therefore position value) although fixed fees regardless of position size do exist (more commonly in share trading).
Let's use OKX's fees on our example trades.
OKX Charges 0.05% for Market Orders.
One of the ways to save on fees is to use Limit orders where possible, but to keep things simple we're going to assume Market orders for both entry and exit.
The fees will be slightly different on entry and exit due to the position value changing:
A 0.1 BTC entry at $25,000 has a $2,500 position value, but that same position exited when BTC is at $24,000 now has a $2,400 position value.
Luckily for us, the change in position value will be identical to the stop loss percentage which we can see here:
$25,000 Entry with a $24,000 Exit means a Stop Loss of 4%
$2,500 Position Value at entry with a $2,400 exit Position Value is a 4% decrease in value
This means for Longs our exit value can be calculated as:
Exit Value = (1- Stop Loss Percentage) x Entry Value
For Shorts it would be:
Exit Value = (1 + Stop Loss Percentage) x Entry Value
For our scalp, we already know position value at entry is $142,857.14.
With our 0.07% Stop Loss that means our position value at exit is (1 - 0.07%) x $142,857.14 which gives an exit value of $142,757.14 (note that corresponds to our $100 raw P&L loss = 1% of account risk)
At 0.05%, that means our total fees for the scalp become
0.05% x $142,857.14 + 0.05% x $142,757.14 = $142.81
For our Daily trade, we know position value at entry is $2,898.55.
With our 3.45% Stop Loss that means our position value at exit is (1 - 3.45%) x $2,898.55 which gives an exit value of $2,798.55 (note that this again corresponds to our $100 raw P&L loss = 1% of account risk)
At 0.05%, that means our total fees for the Daily trade become
0.05% x $2,898.55 + 0.05% x $2,798.55 = $2.85
So we can see, despite the exact same raw P&L of the $100 loss across both trades, we pay fees of $142.81 on the scalp trade compared to $2.85 for the daily trade - literally 50x the fees.
We can also look at this from the lens of total account P&L.
The scalp cost us $242.81 ($100 raw P&L + $142.81 in fees) for a loss of 2.4281% of our account.
The Daily trade cost us $102.85 ($100 raw P&L + $2.85 in fees) for a loss of 1.0285% of our account.
We can do the same for if the trades were a success.
Entry value does not change, we still enter the same position size at a price of $25,000.
Exit value for Longs will then be:
Exit Value = (1 + Take Profit Percentage) x Entry Value
For Shorts it would be:
Exit Value = (1 - Stop Loss Percentage) x Entry Value)
For our scalp, position value at entry is again $142,857.14.
With our 0.51% Take Profit that means our position value at exit is (1 + 0.51%) x $142,857.14 which gives an exit value of $143,585.71 for a raw profit of $728.57
At 0.05%, that means our total fees for the scalp become
0.05% x $142,857.14 + 0.05% x $143,585.71 = $143.22
We can now calculate the scalp made us $585.35 ($728.57 raw P&L - $143.22 in fees) for a growth of 5.8535% of our account.
For our Daily trade, we know position value at entry is $2,898.55
With our 24.51% Take Profit that means our position value at exit is (1 + 24.51%) x $2,898.55 which gives an exit value of $3,608.98 for a raw profit of $710.43
At 0.05%, that means our total fees for the Daily trade become
0.05% x $2,898.55 + 0.05% x $3,608.98 = $3.25
We can now see the Daily trade made us $707.18 ($710.43 raw P&L + $3.25 in fees) for a growth of 7.0718% of our account.
Despite both of these trades being roughly 7.1 R:R on the chart, we can see they have significantly different profits due to the fees incurred.
The affect of fees on Risk to Reward
The above is the reason we introduced the fee adjusted R:R at VEMA Trader.
The charts above show both trades being roughly 7.1 to 1 R:R trades.
But if we take into account the fees we can see the scalp becomes
$585.35 Reward against $242.81 of Risk for a 2.41 R:R with fees
and the daily trade becomes
$707.18 Reward against $102.85 of Risk for a 6.88 R:R with fees
So we can see the daily trader is around 2.85x ( 6.88 / 2.41 ) more profitable once fees are taken into account, despite having the same raw loss and a smaller raw profit by around $18.
If we consider this across a number of trades, the Scalper has to have almost a 3x higher win rate for the same number of trades, or the same win rate but take 2.85x as many trades, just to keep up with the Daily timeframe trader - an absolutely massive difference!
Compare the pair
Scalp Trade | Daily Trade | |
Stop Loss Percentage | 0.07% | 3.45% |
Take Profit Percentage | 0.51% | 24.51% |
Position Value (Entry) | $142,857.14 | $2,898.55 |
Raw P&L of SL | -$100.00 | -$100.00 |
Raw P&L of TP | $728.57 | $710.43 |
Fees on Loss | -$142.81 | -$2.85 |
Fees on Win | -$143.22 | -$3.25 |
Total P&L on Loss | -$242.81 | -$102.85 |
Total P&L on Win | $585.35 | $707.18 |
R:R on Chart | 7.1 | 7.11 |
True R:R with fees included | 2.41 | 6.88 |
True R:R performance compared to other |
0.35x | 2.85x |
What if we include fees in our position size calculations?
Some people ask:
"What if the position size was done so that your loss if the trade gets stopped out was 1% Including fees?"
Which is a great question!
Unfortunately due to fees and position value being percentage based, all this would do is scale down your position size & position value accordingly, which would also change your reward if the trade went on to hit your Take Profit.
We can then easily see the P&L options from the fee adjusted R:Rs of both trades.
Both trades would then lose $100 total if the Stop Loss was reached (Raw P&L + Fees)
The Scalp would now have 2.41% account growth if the TP was hit (1% Loss x 2.41 fee adjusted R:R)
The Daily would now have 6.88% account growth if the TP was hit (1% Loss x 6.88 fee adjusted R:R)
Conclusion
Higher fees are unfortunately an undeniable factor of scalping as opposed to higher time frame trading. This, as well as other higher risk scalping factors such as slippage leads to scalping being an inherently less profitable (on average) system of trading than higher time frame trading.
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