Transaction costs
Trading is not free: every rebalance buys and sells assets, and those trades cost money. Transaction costs let you model that cost in the portfolio's optimisation, in its returns, or in both. They are set in the Portfolio Setup advanced settings.
The rate is the cost charged on each trade, in basis points—one basis point is 0.01%. It applies to turnover, the total value bought and sold at a rebalance.
A transaction cost acts in two ways:
- In the optimiser: a higher rate makes larger allocation changes less attractive, so the optimiser favours smaller trades. This is the same penalty as allocation inertia, reached through cost.
- In returns: this is the In Returns switch. When on, the cost is subtracted from the portfolio's daily return on the rebalance day; when off, the cost still acts as the optimiser penalty but is not deducted from the portfolio's returns.
For example, at 5 bps a full rebalance—selling the entire portfolio and buying a new one (100% + 100% = 200% turnover) —costs 2 × 0.05% = 0.1%. If the portfolio returned 1% that day, the net return after cost is 0.9%.
Turnover is measured on notional, so a leveraged portfolio pays proportionally more. Anything that lowers turnover lowers cost, so transaction costs work alongside ranking and allocation inertia and a less frequent rebalance.
