Scalping: why costs decide the outcome
What a pip is worth on USD/ZAR and why the lot size changes it
A pip is the fourth decimal place in a USD/ZAR price. If the quote moves from 18.4100 to 18.4101, that is one pip. The rand value of that pip depends on how large your position is, not on the price itself.
One standard lot on USD/ZAR is 100,000 units of the base currency, which is the US dollar. A move of one pip is 0.0001 rand per dollar, so 100,000 multiplied by 0.0001 gives R10.00. That is where the R10.00 per pip figure comes from.
A mini lot is one tenth of that size, so one pip is about R1.00. A micro lot is one hundredth, so one pip is about R0.10. The arithmetic in this lesson uses one standard lot, and you can scale every result by your own lot size.
The value also shifts slightly as the USD/ZAR rate itself moves, because the pip is a rand amount calculated from a changing price. The change is small at these levels, but it is not zero. Your broker will show the live value on the platform.
The cost is charged per trade and it does not care about the result
The spread is the gap between the price at which you can buy and the price at which you can sell. If the bid is 18.4094 and the ask is 18.4106, the gap is 0.0012, which is 1.2 pips. You enter at the worse side of that gap, so the market must move 1.2 pips just to bring you back to where you started.
That cost is charged on every trade, whether the trade ends in profit or in loss. Twenty trades a day means twenty spreads paid. At 1.2 pips each, that is 24 pips of cost across the day before any commission is added.
Commission is a separate charge that some brokers apply per lot, often per side of the trade. A round turn means you pay it when you open and again when you close. Whether commission applies, and how much, varies between brokers, so the numbers here cannot include it.
Swap is a third possible cost. It applies only if you hold a position overnight, so a trade opened and closed inside the same session usually avoids it. Scalping is short by design, which keeps swap out of the picture for most trades.
Turning the arithmetic into a rule you can apply before you enter
Write the spread down before you enter. Subtract it from your gross target. If the gross target is 3.0 pips and the spread is 1.2 pips, the net is 1.8 pips. That net figure is the only one that reaches your account.
Compare the net figure with the risk. If your stop is 5 pips away and your net target is 1.8 pips, you are risking more than you stand to gain. The trade needs a higher gross target, a tighter stop, or it needs to be skipped.
Check the spread again around news releases and at the daily rollover. It can widen sharply for a short period, and a widened spread can turn a trade that looked profitable on paper into a loss. The amount of the widening varies between brokers and between sessions.
Keep a written record of gross target, spread, commission and net result for a week of trades. The record shows whether the strategy is producing a net gain or only a gross one. Without the record, the gross number is the only one you see, and it flatters the result.
20 trades at 3 pips each, with a 1.2-pip spread
| Step | Amount | Note |
|---|---|---|
| Gross pips per trade | 3.0 pips | The move you aim to capture. |
| Spread cost per trade | 1.2 pips | Quoted by the broker; varies between brokers. |
| Net pips per trade | 1.8 pips | 3.0 minus 1.2. |
| Trades per day | 20 | The reader's stated number. |
| Net pips per day | 36 pips | 1.8 multiplied by 20. |
| Value of one pip on one standard lot | R10.00 | On USD/ZAR near 18.4100, 0.0001 of one lot is about R10.00. |
| Gross daily result before commission | R360.00 | 36 pips multiplied by R10.00. |
| Commission, if charged | R0.00 in this example | Many brokers charge per lot per side; the amount varies, so it is left at zero here. |
Your broker may round the spread, widen it around news, charge commission per lot per side, or apply a swap if you hold overnight. Those amounts vary between brokers and are not included above.
Doing it once, step by step
Work through the following steps in order, using your own broker's figures where the lesson uses an example. Each step produces one number, and the numbers build on each other.
- 01
Find the pip value for your lot size
Check the contract size your platform uses for USD/ZAR. Multiply it by 0.0001 to get the rand value of one pip. For one standard lot that is 100,000 times 0.0001, which is R10.00.
- 02
Read the current spread in pips
Look at the bid and the ask on your platform and subtract the smaller from the larger. Divide the result by 0.0001 to convert it into pips. A gap of 0.0012 is 1.2 pips.
- 03
Subtract the spread from your gross target
Take the number of pips you expect the trade to move in your favour. Subtract the spread. The remainder is your net result per trade if the target is reached.
- 04
Add any commission per lot
Ask your broker whether commission applies and whether it is charged per side or per round turn. Convert it into pips using your pip value, then subtract it from the net figure. If commission is not charged, this step leaves the number unchanged.
- 05
Multiply by the number of trades
Take the net figure per trade and multiply it by how many trades you expect to place. This gives the net result for the session, before any losing trades are counted.
- 06
Compare net gain with net risk
Write down your stop distance in pips. If the net target is smaller than the stop, the trade risks more than it can return. Adjust the target, the stop, or skip the trade.
The mistake most people make here
The common mistake is counting the 3 pips as profit and ignoring the 1.2 pips already gone. At 3 pips gross, the spread is 40 per cent of the move, so a small widening of the spread turns a winning trade into a losing one. Instead, write down the spread before you enter and subtract it from your target. If the net number is not worth the risk, skip the trade. Also check whether your broker charges commission on top, because that changes the break-even point.Check yourself
If the spread were 1.8 pips instead of 1.2, what would 20 trades at 3 pips gross leave?
Net per trade is 3.0 minus 1.8 = 1.2 pips. Over 20 trades that is 24 pips. At R10.00 per pip on one standard lot, that is R240.00 before any commission.
How many pips does one trade need to cover a 1.2-pip spread and still net 3 pips?
It needs 1.2 plus 3.0 = 4.2 pips gross. Anything less than 4.2 pips gross leaves under 3 pips net.
Questions that come up next
Why does the account not grow if each trade makes 3 pips and the spread is only 1.2 pips
The 3 pips is the gross move, and the 1.2 pips is already gone before the trade counts. So the net is 1.8 pips, not 3.0. Across 20 trades that is 36 pips net, which is R360.00 on one standard lot. If commission is charged on top, the real figure is lower still, and that varies between brokers.
How do I work out the break-even point for one trade
Add the spread to the amount you want to keep. If you want 3.0 pips net and the spread is 1.2 pips, the price must move 4.2 pips in your favour. Anything under 4.2 pips gross leaves you with less than 3.0 pips. Write that number down before you enter, not after.
Does the R10.00 per pip figure stay the same all day
It is close but not fixed. The pip value is a rand amount worked out from the USD/ZAR rate, and that rate moves. At around 18.4100 the figure is roughly R10.00 on a standard lot, and it shifts a little as the rate shifts. The platform shows the live value.
What happens to the arithmetic if I trade a mini lot or a micro lot
Every rand figure scales with the lot size. A mini lot pays about R1.00 per pip, so the 24 pips of spread cost in the example becomes about R24.00 instead of R240.00. A micro lot pays about R0.10 per pip, so the same 24 pips is about R2.40. The pip counts do not change, only the rand value of each pip.
Which costs are left out of the numbers on this page
Commission and swap are both left out, because neither is the same at every broker. Commission is often charged per lot per side, so a round turn costs twice. Swap applies only if you hold overnight. Ask your broker for the exact schedule, since a figure copied from another site will not match your account.
Can I deposit with a bank card or must I use EFT
Payment methods vary between brokers, and the ones commonly offered in South Africa are EFT, instant EFT and bank cards. The method you choose does not change the spread or the commission. It only changes how the money reaches the account. Check the broker's own page for what it accepts.
The words used on this page
- pip
- The fourth decimal place in a USD/ZAR price. A move from 18.4100 to 18.4101 is one pip.
- spread
- The gap between the buy price and the sell price. You enter on the worse side, so the market must cover that gap before the trade is level.
- standard lot
- A position of 100,000 units of the base currency. On USD/ZAR, one pip on a standard lot is about R10.00.
- commission
- A separate charge some brokers apply per lot, often per side of the trade. A round turn means paying it on opening and again on closing. It varies between brokers.
- swap
- A charge or credit applied when a position is held overnight. A trade opened and closed in the same session usually avoids it.
- break-even point
- The gross move needed before a trade returns anything. It is the spread plus the net amount you are aiming for.
What to take away
- A trade that shows 3 pips gross has already paid the spread, so the net is smaller than it looks.
- Write the spread down before you enter and subtract it from the target; if the net is not worth the risk, skip the trade.
- Twenty trades a day means twenty spreads paid, and commission, where charged, sits on top of that.
- The rand value of a pip scales with lot size, so the same pip count costs more on a standard lot than on a mini or micro lot.