When you sign a job contract and they tell you that you will earn, say, 2,000 euros a month, you smile. But payday comes and 1,550 shows up in your account. Where is the rest? Taxes and deductions took it, quietly, without asking your permission. The gross salary is what they promise you; the take-home salary is what actually reaches your pocket.
The exact same thing happens in trading. The profit you see in a backtest is the gross salary. The profit that really lands in your account is the take-home, after the market charges its tolls. And those tolls โ spread, slippage and commissions โ are so silent that many beginners do not even know they exist until they watch their money evaporate.
The spread: the gap between buying and selling
In any market there are two prices at the same time: the price at which you can buy (higher) and the price at which you can sell (lower). The difference between them is called the spread, and it is the first thing you pay the moment you enter a trade.
It is like a currency exchange at the airport: they sell you dollars more expensively than they buy them back. That difference is their business. In trading, the instant you open a position you are already slightly in the red, simply because of the spread. You did nothing wrong; it is the entry toll. And the more you trade, the more times you pay it.
Slippage: the price moved before you arrived
Slippage is the difference between the price you expected and the price you actually got. You ask to buy at 100, but by the time your order is filled, the price is already at 100.3. Those 0.3 that slipped away are slippage, and they usually work against you.
Slippage has three big causes:
- Volatility: when the market moves very fast, the price changes between the moment you decide and the moment your order arrives. The more nervous the market, the more it slips.
- Market impact: if your order is large compared to what is being traded, you yourself move the price when you execute it. It is like trying to buy all the apples at the stand: the last ones cost you more.
- Gaps: sometimes the price jumps all at once โ for example after news or at Monday's open โ and your order fills much further from what you planned.
On top of this comes latency: the small delay between your program sending the order and the broker receiving it. In that instant, however brief, the market may have moved. Another silent bite.
Commissions: the fixed toll
Commissions are the easiest to understand: it is what your broker charges to execute each trade, a fee you pay whether you win or lose. They seem small, but if your strategy trades many times a day, those cents multiply into a mountain.
Why paper profits evaporate
A backtest done without realistic costs is what we call a paper profit: a pretty promise that crumbles the moment reality arrives. A strategy can look profitable on paper and turn into a loser the moment you subtract spread, slippage and commissions. This is especially brutal in strategies that trade a lot: each trade seems to earn a pittance, but the tolls eat that pittance and turn it into a loss.
The rule is harsh but honest: gross P&L means nothing; only the net counts. A strategy that cannot survive its own costs is not a strategy, it is an illusion.
How AlphaLab handles this
AlphaLab, the quantitative lab that runs on your own PC, starts from a non-negotiable principle: always simulate the worst plausible case. It never assumes perfect fills or fairy-tale costs.
That is why, when AlphaLab tests a strategy, it applies conservative, realistic costs: a spread that varies with the market session and volatility, slippage with its three components (volatility, impact and gaps), latency and commissions. The philosophy is to err on the side of pessimism rather than optimism, because misplaced optimism is what really makes you lose money.
The result is that the strategies that survive AlphaLab have already cleared the customs of the real world. And, true to its honesty, AlphaLab also publishes the ones that die once realistic costs are applied. The code is auditable, no black box, and your data never leaves your computer.
Key takeaways
- The backtest profit is the gross salary; what you truly earn is the take-home, after the tolls.
- Spread: the gap between the buy and sell price; you pay it on entry.
- Slippage: the price moves before your fill, driven by volatility, market impact or gaps.
- Commissions and latency add more silent bites on every trade.
- Paper profits evaporate once costs are real; only net P&L matters.
- AlphaLab simulates conservative worst-case costs, so its survivors are realistic. Even so, trading always carries risk of loss.
If you want to see how much of your strategies survives after the tolls of the real market, you can explore AlphaLab with a 14-day free trial. A card is needed to activate it, but nothing is charged if you cancel before day 14. We do not promise profits; we promise to show you the net figure, which is the only one that truly counts.