Round Trip Cost: What It Really Costs to Enter and Exit
What round trip cost means
Round trip cost is the total trading friction for a full in and out: entry plus exit.
In prediction markets, round trip cost is often the real reason strategies fail. You can be right on direction and still lose because getting in and out is expensive.
Why entry only is a trap
Entry is usually easier than exit. When the market moves, liquidity can shrink and spreads can widen. That makes exit costs worse than entry costs.
If you measure only entry, you are building a fantasy PnL model.
What is included in round trip cost
Round trip cost has two components on both sides:
• execution cost: spread, slippage, and impact
• fees: the platform charges on fills
So you can think:
• Entry all in cost
• Exit all in cost
Round trip cost is the sum.
How to measure execution cost on each side
Use effective spread as the realized execution cost metric:
ES = 2 × |Pexec - M|
• Use VWAP as Pexec when you have multiple fills.
• Use midquote at trade time as M.
Round trip cost formula
A practical definition:
Round trip cost = (ES_entry + fees_entry) + (ES_exit + fees_exit)
If you do not have good execution logs yet, you can estimate using spread and expected slippage, but treat it as a rough forecast.
Worked example
You enter and later exit the same market.
Entry
• midquote 50c, your VWAP 52.0c
• ES_entry = 2 × |52.0 - 50| = 4.0c
• fees_entry = 0.7c
• entry all in cost = 4.7c
Exit
Liquidity is worse later:
• midquote 58c, your VWAP 55.5c
• ES_exit = 2 × |55.5 - 58| = 5.0c
• fees_exit = 0.7c
• exit all in cost = 5.7c
Round trip
• round trip cost = 4.7c + 5.7c = 10.4c
If your expected edge was only 6c, this trade was negative EV after costs even if your view was correct.
How to use round trip cost in practice
For trade selection
Skip markets where estimated round trip cost exceeds your edge.
This is common in thin markets with wide spreads.
For sizing
Larger size increases slippage and price impact, which increases both entry and exit costs.
For risk management
Stop losses and fast exits can be extremely expensive in thin markets. That should change your position sizing and when you choose to trade.
Common mistakes
Assuming exit costs equal entry costs: often false.
Ignoring widening spreads during stress: exit costs spike during uncertainty.
Only modeling fees: execution friction is often larger than fees.
Not logging midquote and fills: without clean data, you cannot measure costs.
Takeaway
Round trip cost is the cost metric that matches reality: you must enter and exit. Measure it, estimate it before trades, and treat it as a hard constraint. In prediction markets, costs are often the difference between a good prediction and a profitable trade.
Related
• All In Cost: Spread, Slippage, and Fees in One Number