Spread and slippage are often lumped together as "trading costs," but the cost model treats them as two different things, because they behave differently. One is visible before you trade; the other only reveals itself as you trade. A signal must clear both, and understanding the distinction is what lets you read a cost breakdown without confusing a known cost for a surprise.
Spread: the gap you can see
The spread is the difference between the best bid and the best ask on the order book. It exists before you place anything, and you pay it by crossing it: buying at the ask and later selling at the bid, or the reverse. It is, in that sense, a known cost. You can read it off the book and the cost model charges it as a quantity you could have measured in advance.
Slippage: the surprise on the fill
Slippage is the difference between the price you expected and the price you actually got. It happens when your order is larger than the liquidity at the top of the book, so it eats into worse prices, or when the market moves between your decision and your fill. Unlike the spread, you cannot read slippage off the screen beforehand — you can only estimate it. The cost model therefore treats it as an estimate plus a safety buffer, not a fixed number.
Why a signal pays both
Every round trip crosses the spread and risks slippage on each fill. The cost-beating rule stacks them together with fees and the buffer into the total a signal's expected edge must clear. Treating slippage as optional, or assuming the quoted price is the filled price, is exactly how a marginal signal slips through and loses money it looked like it would make.
How volatility changes the picture
The two costs are not static. When the market turns violent, the spread widens and slippage deepens at the same time, lifting the bar a signal must beat. A setup that comfortably cleared its cost in calm conditions can fail the identical test in a storm — see how volatility raises the cost bar. The cost model recomputes both rather than trusting yesterday's friction.
To see exactly where each cost lands on a single trade, walk through how to read a signal cost breakdown, and keep the signal-quality glossary beside it. The spread is the cost you can see; slippage is the one you must respect anyway.