Basically Futures

STAGE 1 · LESSON 5 OF 5

Orders, fills, and transaction costs

A trade has a quoted price, an execution price, and expenses between them.

THE IDEA~8–12 MINUTES

Understand it

A market order seeks execution quickly but not a guaranteed price. A limit order controls the worst acceptable entry price but may not fill. Stop orders become active at a trigger and can slip in fast markets; stop-limit orders can fail to execute. Include bid–ask spread, commissions, exchange and clearing fees, and slippage when evaluating a strategy. Small theoretical edges often disappear after realistic costs.

WORKED EXAMPLE

A hypothetical strategy averages $18 before costs per trade. If the round-trip commission is $5 and effective spread/slippage is $8, the remaining average is $5 before other considerations. The gross result overstated the economic benefit.

Watch for this misconception

Treating a backtest that ignores costs as a realistic net performance forecast.

PRACTICE EXERCISE

List each cost item you would check before opening a real account. Use a broker's current published schedule.

Position-size calculator ↗
KNOWLEDGE CHECK

Which is true of a limit order?

Select the best answer

Check the sources

Hypothetical educational examples. Verify current product specifications and rules before making decisions.