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🧲 Friction Ratio Calculator
Volatility is not opportunity. Volatility minus friction is opportunity, and the second term is the one nobody measures.
💡 Quick Insight
Basis points exist so that a $1.50 stock and a $400 stock can be compared. One basis point is 0.01%. Run this for every instrument you are considering, write the ratios in one column, and the ranking is done. It takes about twenty minutes and needs nothing but your broker's quotes and sixty sessions of highs and lows.
Friction As A Share Of The Opportunity
An instrument offers you a daily range and charges you a round trip. Write both in basis points so that instruments of different prices are comparable, and the whole question reduces to one fraction.
⚠️ The Formula
friction ratio = round-trip cost (bps) / average daily range (bps)
round-trip cost = spread × 2 + commission × 2 (+ impact, if your size warrants it)
average daily range = mean of (high − low) / close, over the last 60 sessions
That fraction is the share of a typical day's entire movement that you hand over simply for the right to participate.
Across What Retail Traders Actually Choose
| Instrument | Spread (bps) | Daily range (bps) | Round trip | Share of the range |
|---|---|---|---|---|
| Mega-cap tech | 1.0 | 150 | 2.0 | 1.3% |
| S&P 500 ETF | 1.7 | 90 | 3.4 | 3.8% |
| Mid-cap, $40 stock | 12.5 | 250 | 25 | 10.0% |
| Small cap, $5 stock | 100 | 500 | 200 | 40.0% |
| Micro-cap, $1.50 stock | 330 | 900 | 660 | 73.3% |
Spreads and ranges are representative order-of-magnitude figures for each category, not quotes for any particular security. The point of the exercise is that you fill this table in with your own instruments, from your own broker's quotes.
⚠️ What The Bottom Row Means
At a friction ratio of 73%, you must be right about roughly three quarters of the day's entire movement before you have covered the cost of showing up.
And notice the trap it is built on. The micro-cap has a 900 basis point daily range, six times the mega-cap. It genuinely does move more. It is the instrument that looks most attractive on a chart and is worst on the arithmetic, and those two facts have the same cause.
The Second Filter
Lowest friction does not settle it, or everyone would trade one index ETF and stop. The instrument must also produce the behaviour your method needs: mean reversion needs something that overshoots and comes back, a sweep method needs visible stop clusters and a crowd to run them, a trend method needs something attached to a slow macro force rather than one company's news flow.
So the choice is a conjunction, not a ranking: lowest friction among the instruments that actually exhibit the behaviour you trade. Rank on this calculator, then eliminate anything that fails the second test, and the field is usually down to two or three.
Common Instrument-Selection Mistakes
"Trade What Moves"
The single most expensive piece of advice a beginner receives. The instruments that move most are almost always the ones that charge most to enter and leave, and the charge scales with the movement.
Comparing Spreads In Cents
"A penny spread" means nothing on its own. A penny on a $400 stock is 0.25 bps. A penny on a $1.50 stock is 67 bps, 267 times the cost for the identical quoted spread.
Using The Headline Spread
The spread you see at 10:30 AM in a liquid name is not the spread you get in the first five minutes, in the last five, or on the day something happens. And the spread you are quoted for 100 shares is not the spread you get for 10,000.
Treating The Ranking As The Decision
Friction ranks candidates; it does not choose among them. An instrument you cannot trade during its active hours, or that never exhibits the behaviour your method exploits, is not a candidate at any price.
Professional Instrument Selection
Build The Table Once, Keep It
Sixty sessions of highs and lows and one spread sample per instrument. Twenty minutes of work that decides what you look at for the next year, and it needs no indicator, no subscription and no view.
Add Impact Once Your Size Is Visible
The formula's optional third term matters the moment your order is a meaningful fraction of the resting book. If you routinely take more than the displayed size, your true round trip is larger than the quoted spread implies, measure it from your own fills, not from the quote.
Re-run It When Volatility Regimes Change
Both halves of the fraction move, and they do not move together. Ranges expand in stress while spreads widen faster, so the ratio usually gets worse exactly when the chart looks most interesting.
Read It Against Your Expectancy, Not In Isolation
A 10% friction ratio is not a verdict. It is a fixed line in your expectancy calculation: the share of an average day's move that leaves before your edge is applied. Put it next to your average winner in R and ask whether what remains is still positive.
📚 Learn More About Instrument Selection
What Should You Actually Trade
Ranking instruments by friction as a share of their daily range
The Spread Is the Price of Immediacy
Where the cost half of the friction ratio comes from
What You Are Actually Buying
Tick, point and the account a futures stop actually requires