Gross backtest returns are fiction until you subtract the friction of real trading. Every signal that flips a position pays a toll: spread, commission, slippage, and market impact. A strategy trading 250 times a year with 5 bps round-trip cost surrenders roughly 12.5% of gross annual return before any alpha is counted.

Costs scale with turnover, so high-frequency signals need proportionally higher edge to survive.

Spread: half-spread paid on entry and exit
Commission: fixed per-share or per-contract fee
Slippage: difference between signal price and fill price
Impact: your own order moving the market

Turnover (trades/yr)	Cost per trade	Annual drag
12	10 bps	0.12%
120	10 bps	1.20%
1200	10 bps	12.0%