The $12,000 Lesson
Your backtest shows 18% annual returns. You deploy it with real money. Six months later, you're down 3%.
The culprit? Trading fees you didn't model. Not approximately — you just... ignored them. The backtest assumed zero-cost trades. Reality charges $0.005 per share, plus exchange fees, plus SEC fees, plus the bid-ask spread that widens every time the market sneezes.
I've seen this destroy more strategies than any other single mistake. The math is brutal: a strategy that trades 200 times per year with $50k position sizes can easily rack up $8k in annual costs. That 18% return? Now it's 2%. And that's before slippage.
What Fees Actually Look Like (With Real Numbers)
Let's say you're running a mean-reversion strategy on SPY. Your backtest buys 1000 shares at $450, sells at $455. Clean $5,000 profit per round-trip, right?
Wrong.
Here's the actual cost breakdown for a single round-trip at Interactive Brokers (their tiered pricing, which most algo traders use):
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