Your question is Transaction Costs and Backtests. Take a moment with it on the right.
Talk me through your thinking if you like. When you're confident, submit your answer and I'll grade it like a real screen (7/10 or better passes).
How do you think about the impact of transaction costs on a strategy's backtest results?
Discuss how you would estimate and apply commissions, bid-ask spread, market impact, exchange fees, borrow costs, funding costs, and turnover-related slippage. Explain how costs can change cumulative returns, Sharpe ratio, drawdowns, capacity, and the validity of a strategy's apparent edge. No strategy, market, dataset, or cost assumptions are provided, so state the additional inputs you would request and how you would test sensitivity.
