Home / ml4t / skills · concepts/transaction-costs/SKILL.md · GitHub

ml4t-transaction-costs skillA

ml4t-transaction-costs is agent-read markdown (skill) from ml4t/skills: Estimate whether a strategy can survive spread, slippage, and market impact before full simulation. Use when screening strategy feasibility early..

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What the file says

# Transaction Cost Feasibility

Before you wire costs into a backtest engine, ask a simpler question: does the signal have enough gross edge to pay for trading at all? If not, the strategy should die early.

## The Problem

The full cost of a trade has three layers: explicit costs (commissions, fees), implicit costs (half the bid-ask spread paid on every execution), and market impact (your own order moving the price against you). Most bad strategies fail this economic screen before any engine-specific implementation details matter.

A strategy with 50 bps gross alpha and 30 bps round-trip costs has a safety margin of only 1.7x - too thin to survive estimation error.

## The Pattern

### WRONG

```python
import numpy as np

# Flat cost assumption - ignores volume dependence
weights = compute_target_weights(signals)
turnover = np.abs(weights - prev_weights).sum()
costs = turnover * 0.001  # 10 bps flat - wrong for large trades
net_return = gross_return - costs
```

### CORRECT

```python
import numpy as np

weights = compute_target_weights(signals)
turnover = np.abs(weights - prev_weights)

# Volume-dependent square-root impact model
…

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How to install

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Source

GitHub

ml4t/skills · 19 stars · license Apache-2.0 · pushed 2026-09-24 · branch main

API

GET https://markdownregistry.com/api/v1/artifacts/art_rnuf2hloxiiaoltj
GET https://markdownregistry.com/api/v1/resolve?ref=ml4t/skills/ml4t-transaction-costs
GET https://markdownregistry.com/api/v1/blob/d05ca6174949ff57f4bae3b99550a5a00c4a065c9946a9f1a34ca1898afe2c1c

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