Break-even slippage: the one number to ask for before trading a high-turnover strategy
Every strategy has a cost level at which it stops making money. For frequent traders the most important cost is not brokerage but slippage: the difference between the price you expected and the price you got. We call the slippage at which a strategy's profit falls to zero its break-even slippage, and it is the first thing to ask for.
A worked case from our research
We built a short-horizon long/short strategy on stock futures: each period, buy the futures the model ranks highest and sell those it ranks lowest, using machine-learned features, on the stocks that have futures on NSE. In a development window of 2018 to 2023 the model's ranking passed the pre-registered gate. The next step was the one that matters: a lot-aware simulation on a later, unseen window (January 2024 to September 2025) that used whole lots, exchange margin of about 20%, ₹50 per order all-in for charges and slippage of 1% per full cycle (entry and exit).
It failed. The break-even slippage came out at:
| Portfolio | Capital | Break-even slippage per cycle |
|---|---|---|
| 5 long + 5 short stock futures | ₹20 lakh | 0.28% |
| 10 long + 10 short | ₹40 lakh | 0.18% |
Meaning: if your average all-in slippage per round trip exceeds 0.28% (or 0.18% for the larger portfolio), the strategy loses money on that window. At 1% per cycle, the assumption in our pre-registered rules, it lost clearly. At a hopeful 0.05% to 0.10% it was positive, but the t-statistic was only 1.0 to 1.7, 2025 was weak and the drawdown was 21% to 27%, so we did not promote it.
How to compute break-even slippage
- Run the back-test with zero slippage but with real charges, and record the total profit and the number of round trips.
- Divide the total profit by the total traded value (the sum of entry and exit notionals), or per round trip: that is the gross edge per rupee traded.
- The slippage at which net profit is zero equals this gross edge per cycle. In practice, run the test at several slippage levels (0.0%, 0.05%, 0.10%, 0.25%, 0.5%) and read off the crossing.
Be explicit about the unit: per fill (each order) or per full cycle (entry plus exit). Mixing these up doubles or halves the answer. We state "per full cycle" in the table above.
Why it matters more than the average profit
- It is observable in advance. You can measure your own typical slippage on small live orders; you cannot measure a strategy's future gross edge. A margin of safety is the ratio of the break-even to your realised slippage.
- It scales with turnover. A strategy that trades every day pays slippage every day. A monthly rebalance can tolerate ten times more.
- It reveals fragility. If realistic slippage is within a factor of two of break-even, a modest regime change (wider spreads in volatile markets) can erase the edge.
What typical slippage looks like
There is no universal number. Liquid index futures can trade within a tick or two; mid-cap stock futures during the open or close can cost much more; far out-of-the-money options routinely cost several percent of the premium. A trader's own report we examined measured live fills about 1.5% worse than the minute-open price on index options (3.5% in the first 15 minutes): see overnight strangles. Measure yours: place small orders in the instrument and compare fill prices with the quote at the time of the decision.
Whole lots change the picture
The pre-registered second step deliberately forced whole lots, real margin and a fixed account size. With futures lots worth several lakh rupees each, a ₹20 lakh account can only hold a handful of positions, so each trade is lumpy and a single bad position matters. A strategy that works as an average over hundreds of small positions may not survive with ten whole lots. Always test the version you can actually trade.
How costs have moved
From 1 April 2026 the STT on futures rose from 0.02% to 0.05% of the sell-side value. For a long/short futures book that trades often, this is a meaningful share of the margin in the break-even figure above: see the STT article. Check the current schedule before you reuse any cost assumption.
A checklist
- Ask: what is the break-even slippage, per fill or per cycle, and at what turnover?
- Measure your realised slippage on small live orders.
- Require a safety factor of two or more between realised and break-even slippage.
- Test with whole lots, real margin and your capital, not an idealised portfolio.
- Re-test after any change in charges.
Limits
This result covers one strategy family, one window and our stated cost assumptions. The idea passed its development gate; the failure at this step is about implementation economics under whole lots and costs. Parked, not discarded: we would only revisit it with measured slippage from real order data. The Strategy Review has the full study: stock-futures long/short. See also how we test ideas. This is research and not a recommendation.