Transactions are generally subject to direct costs (bid-ask spread + commission) and indirect costs (price impact). At Wealthfront, we pay the commissions on your behalf.
When computing backtested results of the Smart Beta strategy, we assume a roundtrip transaction cost of 0.20% (measured as the cost of buying and then selling the security, expressed as fraction of the average buy and sale price). This represents the average bid-ask spread of large capitalization stocks over the period from 2000-2016.
For more details, see our Smart Beta White Paper.
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