Chapter 28 · Transaction Cost

Phase 5 · Backtest foundationsTRD-BT-004 · v1.0

Skills to practice: Data validationActual execution
Read first: Chapter 25 · Backtest Chapter 14 · Liquidity
3D simulation: None

Market scene

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Lin shortens the window to capture more moves, increasing gross returns. Zhe turns on execution costs; frequent entries and exits consume profits. Worse, costs reduce capital and change later order quantities.

Your decision

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How will you restore costs to each trade to measure the remaining edge?

Observe the result

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The experiment lists fees, slippage, impact, and funding separately. Raise one input at a time and compare total costs, trade counts, and net profit. Gross and net profit use the same actual quantities, so their difference reconciles to costs.

The mechanism

Fees are charged on actual fill notional. Slippage is fill-price deviation from a reference. This page includes spread in its slippage configuration; do not add it again. Impact is an independent bps scenario approximation without real depth or order-size feedback. Funding uses closing position direction and notional each bar, and may be positive or negative.

Higher turnover typically makes execution friction more important. Longer holding makes funding and position risk more important. Provide baseline and stressed cost assumptions and record differences from actual fills. The annualized figure in the question is not a return promise for this page.

What it is called

Trading feeTrading Fee

Charges under execution rules, with explicit rate, notional, and number of legs.

Slippage costSlippage Cost

Deviation between reference and fill prices; this page uses one scenario parameter including spread effects.

Funding costFunding Cost

Net payments or receipts from perpetual positions; signs depend on direction and rates.

TurnoverTurnover

Cumulative traded notional relative to reference capital, with explicit two-sided and time definitions.

Real markets

Taking liquidity changes the average fillOrder books

Level-by-level consumption in Chapter 13 shows why reference price differs from average execution.

Holding creates cash flows tooPerpetuals

Chapter 17 shows funding; longs do not always pay.

Crowded exits cost moreMarket structure

Forced selling in Chapter 18 reminds researchers to stress deteriorating costs.

Hands-on

LabBuild an all-cost reconciliation25 minutesPage experiment and local text

Retain defaults and record cost components and net profit.
Raise fees, slippage, and impact separately, then toggle funding. Save each scenario report.
Produce baseline/stress cost tables, stating whether spread is included, funding direction, capacity limits, and missing data.

360 synthetic daily bars with seed 42, not historical performance. Initial $10,000; each entry uses 50% of equity, no rebalancing while held, exit at final close. Equity exhaustion is checked at opens/closes and negative equity retained.

Research rule

Lookback bars：10Change threshold (%)：1

Keep only signals with current-bar funding between −0.02% and +0.02% (exit otherwise)

One-way fee (bps)：4Slippage including spread (bps)：2Additional impact (bps)：0

Settle funding at every close (disabling does not change observed signals)

Net return: 9.38%
Maximum drawdown at closes: 15.63%
Closed trades: 44
Net win rate: 52.27%
Final equity (USD): 10,937.56
Shutdown / negative equity (USD): Not shut down / 0

Same-quantity ledger (USD)	Amount
Gross PnL	1,320.78
Fees / slippage / impact	183.33 / 91.66 / 0
Net funding paid (negative means net received)	108.23
Net PnL = gross − all costs	937.56

Gross PnL is reconstructed using the same actual quantities and reference prices; it is not a separate zero-fee strategy. Costs affect later equity and quantities. A fixed impact parameter does not estimate book capacity. Funding may be received net.

Report notes and evidence gaps

Report preview:backtest-report.md

# Backtest Report · Synthetic teaching run

- Data: generateSyntheticMarket, seed 42; 360 synthetic daily bars, t0=0 ms; OHLCV/OI/Funding available at each close. Not historical market data.
- Rule: momentum, lookback 10, threshold 1%; long/short; funding filter Disabled
- Timing: current-close signal → next-open execution. No trades during warm-up; entry budget is 50% of current equity, no rebalancing while held; forced exit at the final close.
- Costs: one-way fee 4 bps, slippage including spread 2 bps, additional impact 0 bps, close funding Settled
- Same-quantity gross PnL 1,320.78; fees 183.33; slippage 91.66; impact 0; net funding paid 108.23; net PnL 937.56 USD.
- Net return 9.38%; maximum drawdown at closes 15.63%; 44 closed trades; negative equity 0 USD.
- IS/OOS: this is full-sample exploration, not a completed blind test. Record the freeze and OOS results in the sample-split experiment; a viewed test period is no longer unseen.
- Parameter stability: parameter grids, different seeds, and cost stress remain to be tested. One curve cannot establish stability.
- Regimes (retrospective generator labels; independent capital resets per segment, not attribution of a continuous curve):
  - Rising segment [0,120): net return 11.34%; drawdown 1.75%; total cost 120.35 USD (fees 33.85, slippage 16.93, impact 0, net funding paid 69.57).
  - Choppy segment [120,220): net return -7.05%; drawdown 9.73%; total cost 123.05 USD (fees 76.24, slippage 38.12, impact 0, net funding paid 8.69).
  - Falling segment [220,320): net return 3.76%; drawdown 3.19%; total cost 73.03 USD (fees 47.82, slippage 23.91, impact 0, net funding paid 1.3).
  - Stress segment [320,360): net return 2.05%; drawdown 11.69%; total cost 64.96 USD (fees 26.16, slippage 13.08, impact 0, net funding paid 25.72).
- Promotion gates (provide evidence and pass/fail/unknown for each; this synthetic experiment does not qualify for live trading):
  - Economic logic: unknown; Can you explain who pays you and why they are willing?
  - Statistical significance: unknown; Can the result be distinguished from luck? How many attempts found it?
  - Out-of-sample: unknown; Does it hold on completely unseen data?
  - Robustness: unknown; Does it hold across parameters, markets, and periods?
  - Costs: unknown; What remains after fees, slippage, funding, and impact?
  - Risk: unknown; What is the worst-case loss and correlation with the existing portfolio?
  - Execution: unknown; Can actual execution approach backtest assumptions? What is capacity?
  - Market regime: unknown; Which regimes produce profits and which cause failure?
- Researcher notes (source timestamps, splits, stability, execution limits): (To complete)
- Limitations: entry budget at or below 1× does not mean no leverage during holding. Bankruptcy is checked only at opens/closes; no intrabar liquidation. Funding settles per bar; impact is a parameter, not a fitted book model. No live quotes or order connections.

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Course versionV1-docs; sourcep3:report:backtest-report.md；Chapter 28 / TRD-BT-004

Records parameters and results at the click only; does not mean the experiment passed.

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# Backtest Report · Synthetic teaching run

- Data: generateSyntheticMarket, seed 42; 360 synthetic daily bars, t0=0 ms; OHLCV/OI/Funding available at each close. Not historical market data.
- Rule: momentum, lookback 10, threshold 1%; long/short; funding filter Disabled
- Timing: current-close signal → next-open execution. No trades during warm-up; entry budget is 50% of current equity, no rebalancing while held; forced exit at the final close.
- Costs: one-way fee 4 bps, slippage including spread 2 bps, additional impact 0 bps, close funding Settled
- Same-quantity gross PnL 1,320.78; fees 183.33; slippage 91.66; impact 0; net funding paid 108.23; net PnL 937.56 USD.
- Net return 9.38%; maximum drawdown at closes 15.63%; 44 closed trades; negative equity 0 USD.
- IS/OOS: this is full-sample exploration, not a completed blind test. Record the freeze and OOS results in the sample-split experiment; a viewed test period is no longer unseen.
- Parameter stability: parameter grids, different seeds, and cost stress remain to be tested. One curve cannot establish stability.
- Regimes (retrospective generator labels; independent capital resets per segment, not attribution of a continuous curve):
  - Rising segment [0,120): net return 11.34%; drawdown 1.75%; total cost 120.35 USD (fees 33.85, slippage 16.93, impact 0, net funding paid 69.57).
  - Choppy segment [120,220): net return -7.05%; drawdown 9.73%; total cost 123.05 USD (fees 76.24, slippage 38.12, impact 0, net funding paid 8.69).
  - Falling segment [220,320): net return 3.76%; drawdown 3.19%; total cost 73.03 USD (fees 47.82, slippage 23.91, impact 0, net funding paid 1.3).
  - Stress segment [320,360): net return 2.05%; drawdown 11.69%; total cost 64.96 USD (fees 26.16, slippage 13.08, impact 0, net funding paid 25.72).
- Promotion gates (provide evidence and pass/fail/unknown for each; this synthetic experiment does not qualify for live trading):
  - Economic logic: unknown; Can you explain who pays you and why they are willing?
  - Statistical significance: unknown; Can the result be distinguished from luck? How many attempts found it?
  - Out-of-sample: unknown; Does it hold on completely unseen data?
  - Robustness: unknown; Does it hold across parameters, markets, and periods?
  - Costs: unknown; What remains after fees, slippage, funding, and impact?
  - Risk: unknown; What is the worst-case loss and correlation with the existing portfolio?
  - Execution: unknown; Can actual execution approach backtest assumptions? What is capacity?
  - Market regime: unknown; Which regimes produce profits and which cause failure?
- Researcher notes (source timestamps, splits, stability, execution limits): (To complete)
- Limitations: entry budget at or below 1× does not mean no leverage during holding. Bankruptcy is checked only at opens/closes; no intrabar liquidation. Funding settles per bar; impact is a parameter, not a fitted book model. No live quotes or order connections.

Use the order book below to examine omissions in static cost parameters. Change quantity, side, and cancellations to inspect level-by-level average fills and unfilled quantity. It reuses Chapter 13's model as a separate execution comparison; it does not automatically map this snapshot to the impact rate on every daily bar above. Explain how such a mapping would be calibrated. A fixed bps assumption cannot cover every order size by default.

Quantity3 BTC

Remove half the orders at the first three levels

Average fill price

60,027.33

Slippage

17.33 · 2.9 bp

Price levels reached

4 levels

Spread after execution

Asks (the side your order consumes)

60,010Fill 0.5
60,020Fill 0.8
60,030Fill 1.2
60,050Fill 0.5
60,0803
60,1205

Bids

60,0000.6
59,9900.9
59,9801.5
59,9602.2
59,9303
59,8905

Course versionV1-docs; sourcelab:order-book；Chapter 28 / TRD-BT-004

Records parameters and results at the click only; does not mean the experiment passed.

View snapshot to save

{
  "model": "第13章静态合成订单簿；市价单逐档成交，无补单；spreadAfter为null表示一侧已空",
  "input": {
    "scenario": "chapter13Book",
    "side": "buy",
    "size": 3,
    "thin": false,
    "book": {
      "asks": [
        {
          "price": 60010,
          "size": 0.5
        },
        {
          "price": 60020,
          "size": 0.8
        },
        {
          "price": 60030,
          "size": 1.2
        },
        {
          "price": 60050,
          "size": 2
        },
        {
          "price": 60080,
          "size": 3
        },
        {
          "price": 60120,
          "size": 5
        }
      ],
      "bids": [
        {
          "price": 60000,
          "size": 0.6
        },
        {
          "price": 59990,
          "size": 0.9
        },
        {
          "price": 59980,
          "size": 1.5
        },
        {
          "price": 59960,
          "size": 2.2
        },
        {
          "price": 59930,
          "size": 3
        },
        {
          "price": 59890,
          "size": 5
        }
      ]
    }
  },
  "output": {
    "filled": 3,
    "unfilled": 0,
    "avgPrice": 60027.33,
    "slippage": 17.33,
    "slippageBps": 2.9,
    "levelsTouched": 4,
    "spreadAfter": 50
  }
}

Change one variable

IfIncrease fees only

Post-fill capital falls directly, potentially changing later positions too.

IfDisable funding only

This removes a possible product cash flow and serves only as an attribution comparison.

IfChange only the reference-price definition

The slippage benchmark changes. Fix a benchmark before comparing execution quality.

Three depths

One knowledge nodeTRD-BT-004: one question at each of three depths

FoundationWhat remains after costs from a strategy backtesting at 50% annualized?Chapter 28
AdvancedHow can you build a Transaction Cost Model including fees, slippage, impact, and funding?Advanced E · Execution and microstructure
InstitutionalHow does the cost model determine capacity and optimal turnover?Institutional

List each entry, exit, and holding cash flow before trusting net profit.

Questions to take away

How large should the position be?

Are costs booked per fill, with omissions or double counting?

Is there enough liquidity, and what will execution cost?

Does the risk budget still permit continuing when costs deteriorate?

What is the current market regime?

Which returns come from signals, holding cash flows, or execution?

Chapter self-test

One idea to take away

Record fees, slippage, funding paid or received, and impact at their actual timestamps. Higher trading frequency lets execution friction consume the edge; funding may also be income.

Record this learning session

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What remains after costs from a strategy backtesting at 50% annualized?

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Only your explicit declaration. Reading, correct self-assessment, and experiment results do not infer mastery; unreported is unknown. Revocation restores unknown and removes selected attachments.

Fees：Not read
Slippage cost：Not read
Funding cost：Not read
Turnover：Not read

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Chapter 28 · Transaction Cost

Does funding always reduce returns?

Should spread be added again on this page?

Does zero impact prove no impact?

May original volumes extrapolate results after costs increase?

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