Enter a hypothetical trade to see what crossing the spread, paying or receiving a premium or discount, and commissions add up to over a full round trip. Everything runs in your browser; nothing is sent or stored.
How to read this
The quoted spread is the gap between the bid and the ask. A buyer who trades immediately typically pays the ask and a seller receives the bid, so each side of a round trip costs about half the spread relative to the midpoint.
A premium or discount is the gap between an ETF’s market price and its net asset value. Buying at a premium and selling at a smaller premium (or at a discount) adds to cost; buying at a discount and selling at a smaller discount (or at a premium) reduces it.
Quoted spreads describe the cost of trading displayed size; they do not by themselves describe how much an ETF can trade. For why spreads and premiums/discounts depend on the liquidity of the underlying securities rather than on AUM or on-screen volume, see Why ETF Liquidity ≠ AUM, and for why they can widen in market stress, see Why ETFs Surface Liquidity Constraints Faster Than Mutual Funds. Terms are defined in the ETF glossary.
Formulas
Spread (bps) = (ask − bid) ÷ midpoint × 10,000
Trade value V = dollar amount, or shares × price (price defaults to the midpoint)
Half-spread cost, entry = V × spreadentry ÷ 2 ÷ 10,000
Half-spread cost, exit = V × spreadexit ÷ 2 ÷ 10,000 (exit spread defaults to the entry spread)
Premium/discount impact = V × (P/Dentry − P/Dexit) ÷ 10,000 (negative = benefit)
Commissions = 2 × commission per trade
Round-trip cost ($) = half-spread entry + half-spread exit + premium/discount impact + commissions
Round-trip cost (bps) = round-trip cost ÷ V × 10,000
Expense ratio cost = V × expense ratio × months ÷ 12
Annualized cost (bps/yr) = round-trip bps ÷ (months ÷ 12) + expense ratio in bps
Simplifying assumptions: the position is exited at the same value it was entered (price changes are ignored); orders execute at the quoted bid or ask with no additional market impact; and the expense ratio accrues evenly over the holding period.
Worked examples
| Inputs | Result |
|---|---|
| $100,000; 10 bps spread; no premium/discount; $0 commission; 0.20% expense ratio; 12 months Try this example → | Half-spreads $50 + $50 = $100 (10 bps round trip). Expense ratio $200. Annualized 10 + 20 = 30 bps/yr. |
| 1,000 shares; bid $49.98 / ask $50.02; +15 bps premium at entry, −5 bps discount at exit; $5 per trade; 0.50%; 6 months Try this example → | Midpoint $50, spread 8 bps, V = $50,000. Half-spreads $20 + $20; premium/discount impact 20 bps = $100; commissions $10. Round trip $150 = 30 bps. Expense ratio $125. Annualized 30 ÷ 0.5 + 50 = 110 bps/yr. |
| $250,000; 40 bps spread at entry, 60 bps at exit; −30 bps at entry, +10 bps at exit; $0; 0%; 24 months Try this example → | Half-spreads $500 + $750; premium/discount impact −40 bps = −$1,000 (a benefit). Round trip $250 = 10 bps. Annualized 10 ÷ 2 = 5 bps/yr. |
Disclaimer
This calculator is an educational illustration of arithmetic only. It uses the numbers you enter, does not contain or reference any security, and does not predict actual execution costs, which also depend on order size, market impact, timing and market conditions. It is not investment advice, a recommendation, or an offer to buy or sell any security.
All views expressed are the author’s own and do not represent the views of any employer or affiliated organization.