Why do fees and slippage inflate short-term backtests?

The prices shown in a backtest do not guarantee that a real order could have filled at those prices. Fees apply on both sides, the market can move while the order is in flight, and shallow order-book depth can worsen the average execution price.

Costs do not happen once; they recur on every trade

A round trip pays costs on both entry and exit. The difference may look small on a single trade, but it compounds as turnover rises. For short-horizon strategies with a small expected edge, transaction costs can become as large as the edge itself.

Slippage is not a fixed number

Slippage depends on volatility, order size, order-book depth, latency, and order type. Subtracting a fixed 0.1% from every trade can serve as a simple stress test, but it does not fully represent real execution conditions.

The real question is whether any edge remains after paying realistic costs.

A high total return is not enough to pass a backtest. Recheck the result after fees and conservative execution costs are included. If a small change in cost assumptions erases the edge, the strategy may depend more on optimistic execution than on market structure.