Gross and Net Return
Gross return is the result before costs; net return is what remains after fees, spreads, financing and slippage — the only figure that ends up in your account.
A strategy that makes 12% on paper can leave you with 6% — or less — once costs are taken out. Learning to think in net terms is what separates an exciting backtest from a strategy that actually pays.
- Reading time
- 3 min
- Also called
- Gross vs net return, Return before and after costs, Net performance
- Updated
Gross and net return in plain words
Gross return is the profit from the price move alone. Net return subtracts everything you paid to get it.
Fees reduce the amount of money in your portfolio earning a return, and even fees that seem small can have a major impact over time.1
For traders, each trade carries costs such as spreads and commissions.2
How to go from gross to net
Measure the gross result
Exit value minus entry value, before any costs.
Subtract transaction fees
Fees charged each time you buy or sell.1
Subtract the spread
Each trade carries costs in spreads and commissions.2
Subtract slippage
Real fills are not perfect; backtests often assume no slippage.3
Subtract ongoing costs
Fees come as transaction and ongoing fees.1
Judge on net
Include transaction costs in any performance assessment.2
Worked examples
Example 1 — One trade
+2.5% netA hypothetical trade makes $300 gross on a $10,000 position, with $20 commission and $30 spread cost.
| Gross | +$300 (3.0%) |
| Costs | −$50 |
| Net | +$250 (2.5%) |
Each trade carries costs in spreads and commissions, so a sixth of the gross profit is gone.2
Example 2 — Frequent trading
−$1,000 netA hypothetical strategy makes $4,000 gross over 200 trades, paying $25 per round trip.
| Gross | +$4,000 |
| Costs | 200 × $25 = −$5,000 |
| Net | −$1,000 |
Frequent trading without clear rationale accumulates costs rapidly — a gross winner becomes a net loser.2
Example 3 — Long-term fee drag
≈ $29,000 lost to the higher feeA hypothetical $100,000 grows 4% a year for 20 years under two different annual fees.
| Fee 0.25% | ≈ $208,000 |
| Fee 1.00% | ≈ $179,000 |
| Difference | ≈ $29,000 |
Investor.gov uses this same $100,000, 4%, 20-year illustration to show that small fees can have a major impact over time.1
Gross vs net return
| Aspect | Gross return | Net return |
|---|---|---|
| Includes costs | No | Yes |
| What it shows | Strategy's raw edge | What you keep |
| Used in marketing | Often | Less often |
| Lands in account | No | Yes |
Why the distinction matters
Strategy testing
Adding realistic costs to Backtesting results.
Choosing a broker
Comparing Trading Fees and Commissions and Bid-Ask Spread across brokers.
Trading frequency
Seeing whether a Scalping style survives costs.
Honest records
Logging net figures in a Trading Journal.
Advantages and disadvantages
Advantages
- Shows the money you actually keep.
- Exposes strategies that only work before costs.
- Makes broker comparisons fair.
- Discourages overtrading.
Disadvantages
- Some costs are hard to identify.
- Slippage varies trade to trade.
- Financing costs depend on holding time.
- Gross figures are often quoted instead, which can mislead.
Going deeper
Read as far as you need. Each level builds on the one before it.
Costs cut returns
Beginner
Fees and expenses reduce the money in your portfolio earning a return.1
Hidden costs
Intermediate
Even if you can't identify separate fees, you typically pay them — for example, a dealer's markup on price.1
Testing on net
Advanced
Backtests that assume no slippage or latency can overstate results, so performance should always include transaction costs.2
Common mistakes
Quoting gross
Judging a strategy before costs.
Ignoring the spread
Treating commission-free as cost-free.
Forgetting financing
Leaving out overnight or borrowing charges.
No slippage
Backtesting with perfect fills.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Gross is before costs; net is after.
- Spreads, fees, financing and slippage all count.
- Small fees compound over time.
- Frequent trading magnifies costs.
- Judge every strategy on net return.
Frequently asked questions
Are taxes part of net return?
Is commission-free trading free?
Should I use gross or net for my journal?
Further learning
- Trading Fees and Commissions
The costs that separate gross from net.
- Slippage
Why fills differ from plan.
- Expectancy
Measuring edge after costs.
- Backtesting
Building costs into tests.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- SEC Office of Investor Education and Assistance (Investor.gov). How Fees and Expenses Affect Your Investment Portfolio – Investor Bulletin (opens in a new tab) Checked .
- CMC Markets. What is overtrading? Signs & how to avoid it (opens in a new tab) Checked .
- CMC Markets. Backtesting trading strategies (opens in a new tab) Checked .
Read more elsewhere
- Trading Metrics (our sister site): Total Return (opens in a new tab)
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. Trading Metrics is our sister site, under the same ownership; we are not affiliated with any other publisher linked above. Last reviewed . Report an error or request a source credit.