Scalping: why costs decide the outcome
Scalping means taking many small trades and closing them quickly. Each trade aims for a few pips. The cost of entering and leaving is charged on every trade, so it repeats twenty times. That repetition is what decides the outcome.
The instrument used here is EUR/USD, around 1.0850. One pip on one standard lot of EUR/USD is 10 units of the quote currency, which is 100,000 multiplied by 0.0001. Converted at the current rate, that is a naira figure that changes with the exchange rate. All money figures below are in naira (₦).
The cost of a round trip in naira
Every trade has two sides. You pay to enter and you pay to leave. The spread is the gap between the buying price and the selling price. On EUR/USD, a spread of 1.2 pips means the price must move 1.2 pips in your favour before you are back where you started. That cost is charged once per round trip, not once per day.
On one standard lot of EUR/USD, one pip is worth 10 units of the quote currency, which is 100,000 multiplied by 0.0001. At the current exchange rate, that converts to a naira figure. The rate changes, so the naira value of a pip changes with it. In this lesson, the working figure is ₦16,000 per pip on one standard lot. That figure is not fixed. It varies with the exchange rate and with the broker's conversion rate.
So a 1.2 pip spread on one standard lot costs 1.2 multiplied by ₦16,000, which is ₦19,200 per trade. If you place twenty trades, the spread alone costs 20 multiplied by ₦19,200, which is ₦384,000. That money leaves your account whether the trades win or lose. It is the entry fee for taking the position.
What commission adds to the bill
Many brokers charge a commission on top of the spread. The commission is usually quoted per lot per side. For example, a broker might charge ₦4,000 per standard lot to open and ₦4,000 to close, so ₦8,000 per round trip. That is separate from the spread. You pay both.
If the spread costs ₦19,200 and the commission costs ₦8,000, the total cost per trade is ₦27,200. Over twenty trades, that is 20 multiplied by ₦27,200, which is ₦544,000. The commission alone adds 20 multiplied by ₦8,000, which is ₦160,000 to the day's costs. That is money that must be recovered before any profit exists.
Commission varies between brokers. Some charge nothing and widen the spread instead. Some charge a lower commission but a wider spread. The only way to know the true cost is to add the spread cost and the commission together. That sum is the hurdle each trade must clear.
The break-even point per trade
Break-even is the price move needed to cover costs. With a 1.2 pip spread and no commission, break-even is 1.2 pips. With a 1.2 pip spread and ₦8,000 commission, you must first cover the spread, then cover the commission. The commission in pips is ₦8,000 divided by ₦16,000 per pip, which is 0.5 pips. So total break-even is 1.2 plus 0.5, which is 1.7 pips.
If you aim for 3 pips, your net before commission is 3 minus 1.2, which is 1.8 pips. After commission, it is 1.8 minus 0.5, which is 1.3 pips. Over twenty trades, that is 20 multiplied by 1.3, which is 26 pips. At ₦16,000 per pip, that is 26 multiplied by ₦16,000, which is ₦416,000. That is the gross profit before any losing trades are counted.
If the spread widens to 2 pips, the net before commission is 3 minus 2, which is 1 pip. After commission, it is 1 minus 0.5, which is 0.5 pips. Over twenty trades, that is 20 multiplied by 0.5, which is 10 pips. At ₦16,000 per pip, that is ₦160,000. The same twenty trades earn ₦256,000 less than in the first case, because the spread moved by 0.8 pips.
Twenty trades of 3 pips against a 1.2 pip spread
| Step | Amount | Note |
|---|---|---|
| Target per trade | 3 pips | The move the scalper aims to capture. |
| Spread per trade | 1.2 pips | The gap between buy and sell price, charged on entry and exit. |
| Net per trade before commission | 1.8 pips | 3 pips minus 1.2 pips. |
| Net over 20 trades | 36 pips | 1.8 pips multiplied by 20. |
| Value of one pip on one standard lot | ₦16,000 | 10 units of the quote currency converted at an assumed rate of ₦1,600 per unit. This rate varies. |
| Gross result over 20 trades | ₦576,000 | 36 pips multiplied by ₦16,000 per pip. |
| Commission, if charged | varies by broker | Some brokers charge a separate commission per lot. It is not included above. |
| Result if the spread were 2 pips | ₦320,000 | 3 minus 2 equals 1 pip, multiplied by 20 trades, then by ₦16,000. |
The broker may round the spread, widen it around news, charge commission on top, or quote a different exchange rate for the conversion. Any of these changes the final naira figure.
Doing it once, step by step
Work through these steps once, in order, to see how costs decide the result before any technique is applied. Use the figures given here or replace them with your own broker's numbers.
- 01
Write down the spread in pips
Open your trading platform and find the EUR/USD quote. The difference between the buy price and the sell price is the spread. Write that number down in pips. For this walkthrough, use 1.2 pips.
- 02
Convert one pip to naira
One pip on one standard lot is 10 units of the quote currency. Multiply 100,000 by 0.0001 to confirm that. Then convert that 10 units to naira at the current exchange rate. In this lesson, the figure is ₦16,000 per pip. Your rate will differ.
- 03
Calculate the spread cost per trade
Multiply the spread in pips by the naira value of one pip. With 1.2 pips and ₦16,000 per pip, the spread cost is ₦19,200. This is charged on every round trip.
- 04
Add commission if your broker charges it
Check your broker's commission per lot per side. If it is ₦4,000 to open and ₦4,000 to close, the round-trip commission is ₦8,000. Add that to the spread cost. The total cost per trade is ₦27,200.
- 05
Multiply by the number of trades
Decide how many trades you will place. Multiply the total cost per trade by that number. For twenty trades at ₦27,200, the total cost is ₦544,000. That is the amount that must be recovered before any profit exists.
- 06
Compare the net result with the target
Subtract the spread and commission from your target in pips. If you aim for 3 pips and costs are 1.7 pips, the net is 1.3 pips. Multiply by twenty trades and then by ₦16,000 per pip. The result is ₦416,000. If the spread widens, repeat the calculation with the new spread. The net figure is the only one that matters.
The mistake most people make here
The common mistake is to count the 3 pip target as the result and ignore the spread. A 1.2 pip spread takes 40 per cent of a 3 pip target before anything else. If the spread widens to 2 pips, only 1 pip remains, and the same twenty trades earn far less. Check the spread and any commission before you count the target, and treat the net figure as the only one that matters.Check yourself
If the spread is 1.2 pips and you aim for 3 pips, what is the net per trade before commission?
3 minus 1.2 equals 1.8 pips.
Over 20 trades at 1.8 pips net, how many pips remain?
1.8 multiplied by 20 equals 36 pips.
At ₦16,000 per pip on one standard lot, what is ₦ for 36 pips?
36 multiplied by ₦16,000 equals ₦576,000.
If the spread rises to 2 pips, what is the result over 20 trades?
3 minus 2 equals 1 pip, multiplied by 20 equals 20 pips, multiplied by ₦16,000 equals ₦320,000.
Questions that come up next
How much does a 1.2 pip spread cost in naira on one standard lot?
One pip on a standard lot is 10 units of the quote currency. At the working figure of ₦16,000 per pip, a 1.2 pip spread costs 1.2 multiplied by ₦16,000. That equals ₦19,200. This is charged every time you open and close a trade.
What is the break-even move when commission is charged?
Break-even is the price move that covers all costs. With a 1.2 pip spread and ₦8,000 commission, the commission in pips is ₦8,000 divided by ₦16,000, which is 0.5 pips. Add the spread: 1.2 plus 0.5 equals 1.7 pips. You need a 1.7 pip move just to recover costs.
Why does the naira value of a pip change?
The pip value is calculated in the quote currency, which is not naira. To express it in naira, you convert at the current exchange rate. That rate moves throughout the day. Your broker may also use a different conversion rate. So the naira figure you see is only a snapshot.
Does the spread stay the same all day?
No. Spreads often widen when major news is released or when trading is thin. A spread that is 1.2 pips at one moment can be 2 pips or more later. This directly increases your cost per trade and reduces your net result. Always check the live spread before you trade.
How do I compare brokers on cost?
Add the spread cost and the commission together. Some brokers charge no commission but a wider spread. Others charge a lower spread but a commission. The total cost per round trip is the number that matters. That total varies between brokers and account types.
What is the total cost of twenty trades with spread and commission?
Spread cost per trade is ₦19,200. Commission per trade is ₦8,000. Total per trade is ₦27,200. Over twenty trades, 20 multiplied by ₦27,200 equals ₦544,000. That is the cost before any profit or loss is counted.
The words used on this page
- Spread
- The gap between the buying price and the selling price of an instrument. It is the cost of entering a trade. A 1.2 pip spread means the price must move 1.2 pips in your favour before you break even on that cost.
- Pip
- The smallest common price move in a currency pair. For EUR/USD, one pip is 0.0001. On one standard lot, one pip is worth 10 units of the quote currency, which converts to naira at the current rate.
- Round trip
- One complete trade: opening a position and later closing it. Each round trip incurs the spread and any commission. In scalping, you make many round trips, so these costs repeat.
- Commission
- A fee some brokers charge on top of the spread, usually per lot per side. It may be charged when you open and again when you close. Commission varies between brokers and adds to your total cost.
- Break-even
- The price move needed to cover all trading costs before any profit is made. With a 1.2 pip spread and no commission, break-even is 1.2 pips. With commission, break-even is higher.
What to take away
- Every trade pays the spread and any commission, so costs repeat with each round trip.
- A 1.2 pip spread on one standard lot costs ₦19,200 at ₦16,000 per pip.
- Commission adds to the cost and raises the break-even move above the spread alone.
- The naira value of a pip changes with the exchange rate and the broker's conversion.