Execution costs: spread, impact, and the price of impatience

Commission-free trading did not make trading free. The remaining costs are less visible and, for active accounts, usually larger than commissions ever were.

The spread

The difference between the best bid and the best ask is paid on every round trip. For a heavily traded index fund it is a cent or so on a price of several hundred dollars. For a small-cap with a $0.15 spread on a $20 price, it is 0.75% per round trip before anything else happens.

Market impact

Your own order moves the price against you. For retail-sized orders in large names this is negligible. It is not negligible in names where your order is a meaningful fraction of typical volume, which is why many rule-based strategies exclude names below a liquidity threshold.

Timing

Spreads are widest at the open and narrowest mid-session. A rule of waiting until after the first fifteen minutes removes most of the avoidable cost.