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Break-even trading cost

StatisticsEasy

A signal earns $6$ basis points a day before costs and trades $40%$ of the book each day. Costs are charged on the amount traded. What cost, in basis points per unit traded, takes the net edge to exactly zero? Give a whole number.

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Hint

The daily cost is the turnover times the cost per unit.

Solution

The net edge is $6 - 0.4 c$ , where $c$ is the cost per unit traded.
Setting it to zero gives $c = \frac{6}{0.4} = 15$ .

Answer: $15$

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