How to Add Spread to MT5 Strategy Tester: A Guide for Accurate Backtesting

MetaTrader 5, commonly known as MT5, is one of the most famously used multi-asset trading platforms, which can be used online via the web or can be downloaded in the form of software on a range of devices like computers, tablets, and smartphones, and operating software like Windows, macOS, Linux, iOS, and Android. This platform is known for its robust analytical features and ease of access and use. It offers almost all financial instruments like forex, futures, and stocks. MT5 is a great platform for speculative CFD trading, as real-time reporting on accurate price movements is key to success. Because of such features, it is a hit among beginner and experienced traders. 

Beginners in the field require any and all help they can get to gain experience and familiarity with the trading process. MT5 is a great platform for beginners to gain and much more. MT5 offers a range of educational courses for beginners, a comprehensive guide to the software and its versatile tools and various guides to expert advisors. A unique feature of the platform is that it offers its users tailored and customisable trading strategies after carefully auditing their monetary situation and expectations. Another great feature of MT5 is the freedom to make and use a demo account. Through this, beginners can gain first-hand experience in trading without any real assets involved.

Another famous feature of MT5 is backtesting. Trading platforms offer backtesting, a feature where traders can apply their determined strategy to historical data to anticipate how the strategy would have performed. This can help traders predict potential profitability without risking any real capital. Based on the results, traders can change their strategies before applying them to real-world trades with real capital. However, backtesting is just in theory and should be used cautiously because the real world’s stakes and conditions are dynamic. 

However, backtesting can be useful for running a strategy on data, especially when done accurately. One key MT5 feature for accurate backtesting is using the spread. The spread is the difference between an asset’s opening and closing trades. It is measured in pips for Forex markets and points for other markets. 

There is a whole lot of information that a trader needs to equip themselves with on the subject. This article will take you through everything you need to know about accurate backtesting, adding the spread to your MT5 strategy tester, and more. 

Importance of Spread in Backtesting

In MetaTrader 5, backtesting, more commonly known as strategy testing, is a way by which traders can test their strategies in mimicked real-life trading conditions and historical data that will help them understand the profitability and the lack thereof of their strategy. After the results, they can make their strategy more efficient and considerably more profitable by adjusting it. When using backtesting, traders need to set certain parameters that will help them create more realistic conditions and thus help them gain accurate insights into the execution of the trades. 

One such parameter is adding a spread. In financial terms, a spread is the difference between the price at which you can buy an asset and the price at which you can sell an asset, technically known as the bid and the ask price, respectively. Adding this parameter to your backtesting trade is important for several reasons, as the spread represents the real trading cost of the asset. If the spread is not factored in, the MT5 strategy tester might show you the opening and closing prices of the assets at the ideal market prices, which is unrealistic and reduces the backtesting accuracy. 

The absence of the spread can seriously skew the results and produce results far from reality. It can also affect a trade’s exit and entry points. All in all, utilising the spread in backtesting in MT5 is crucial for accurate or near-accurate results and should be taken seriously. Without the spread, the results will appear overly optimistic, misrepresented, highly profitable, and risk-free, which may greatly misguide the traders. So, for the sake of realistic backtesting, the addition of spread is a necessity. 

Understanding Spread in Forex Trading

Spread can be taken from many different definitions, so it is important to understand what it means in terms of trading. Spread is the difference between the price at which you can buy an asset and the price at which you can sell an asset, technically known as the bid and the asking price, respectively. It is most commonly utilised in Forex markets, measured in pips. For example, consider a Forex trader looking at the EUR/USD pair. If we use 2 pips as an example, the correct bid price could be 1.1000 and the correct ask price 1.1002, making the spread 2 pips. This information is crucial when testing a trading strategy in backtesting because realistic spreads enable more accurate conclusions and subsequent strategy adjustments for real-world trading. 

There are generally two types of spreads in the trading world: variable and fixed. Fixed variables are not affected by changing market conditions and remain constant; thus, their name is fixed. This type of spread is commonly offered by brokers who set their own prices. The advantage of a fixed spread is that it offers predictability of the trading cost. Still, the disadvantage is that brokers have much control over the trade and can impose restrictions during high volatility. 

On the other hand, variable spread, as the name suggests, is variable in nature and fluctuates based on a fluctuating market. The advantage is tighter and comparatively more managed spreads, but its disadvantage is that it can widen quickly in volatile markets. As we mentioned, fluctuating market conditions can affect the spreads. If there is high liquidity in the market, for example, in the daytime when most traders are active, the spread can be tighter than in periods of low liquidity, where the spread is more relaxed or wider. 

Introduction to the MT5 Strategy Tester

The MT5 is an all-in-one platform where traders can buy and sell assets and, most importantly, analyse trades and speculate price movements. This is possible due to around 80 different tools and analytical measures MT5 offers on the platform. One such tool is the MT5 Strategy Tester or back tester. It allows the testing of a strategy in real market conditions. It offers a number of features, and they are as follows:

• Traders can use Expert Advisors (EAs) for trade advice while backtesting. 
• Various technical analysis indicators and tools are available to analyse the trades in detail and accuracy. 
• MT5 backtesting allows traders to test their strategies in different trade settings and examine their theories from different perspectives. 
• It offers several risk management techniques and order types, which will be very helpful for traders when used in real-world trades. 
• Most importantly, it offers a news feed for world events that would have affected the asset price in real-time. 

All in all, the MT5 back tester or strategy tester is a fantastic tool for beginner traders to learn and practise their trading skills and for learned and experienced traders to brush up on their expertise in trading. To access MT5, you need to register on the platform, and registering your account on MT5 is very easy. Follow the following steps:

1. In the platform’s “File” menu, select the “Open an Account” option. 
2. Select a server provided by your broker to make a live account. Or
3. Select the demo account option to make a demo account. We recommend making a demo account before making a live one for beginners. 
4. Please complete the registration form with the rest of your details. Make sure to provide accurate details that match your personal documents. 
5. Submit the form after filling out the details. 
6. Receive your login credentials and keep them secure. 

You can now begin scouring the platform and test your strategy quickly. 

How to Add Spread to MT5 Strategy Tester

You can run the MT5 strategy tester easily by following these steps:

1. Launch MT5 and look for the Strategy Tester button in the options panel. 
2. In the Strategy Tester window, configure your testing mode and asset class. 
3. Select the Spread option from the options panel and input a fixed or variable spread according to your strategy and asset class. 
4. According to the market conditions, adjust your spread for accurate backtesting. 
5. Start the backtest and wait for the results. 

Getting all the settings right according to your strategy may take time.  

Analysing Results with Spread

Once you have added the spread to your test, accurately analysing the results is very important. This will ensure the robustness of your strategy and its real-world application. The first thing you need to analyse after running the backtest is the net profit and loss. Without the spread, the profit is seen to be higher as compared to when the profit is added to the test. This is because, with the spread, the cost of the trade has been added, just like in the trades conducted in the real-world markets. Without the spread, the given profit would be unrealistic and would not help adjust your strategy for real-market application. 

Another factor to look at is the risk-to-reward ratio. Without the spread, the ratio may appear balanced, which means that for every risk you take, there may be a good chance of gain or return. But after factoring in the spread, the reward may seem smaller because now the costs of opening and closing a trade are factored in just like in the real world, and now you only have the actual gains. These are a few factors that you should analyse to see the difference between using and not using spread in backtesting, and, for accurate backtesting results, adding spread is necessary. 

Common Mistakes and How to Avoid Them

While adding the spread to backtesting on MT5, traders most commonly make the following three mistakes:

Same Setting for Each Trade 

Traders often use the same settings for different trades and forget to update them with each new test. This is not recommended, as each trade is unique and requires careful, manual spread setting for accurate results. 

Misreading Results 

Most traders just examine the test’s profit and loss results and forget to consider other metrics, such as a risk-to-reward ratio, which can offer valuable insights into the test and strategy. 

Forgetting Platform Fees

Traders also mostly forget to factor in platform fees. This can affect their profits and loss statements. 

These are just a few of the most commonly made mistakes while adding the spread to backtesting on MT5 and should be avoided if accurate backtesting results are needed. 

Comparative Analysis with Other Platforms

MetaTrader 5 is a superior trading platform that offers unmatched metrics and technical analysis tools compared to MetaTrader 4 (MT4) and TradingView. MT4 only offers fixed-spread backtesting and trading in a single asset class, Forex. On the other hand, TradingView adds and spreads automatically but does not offer optimisation tools like MT5. MT5 has the upper hand when it comes to adding either fixed or variable spreads for backtesting and getting accurate results. 

MetaTrader 5 trading platform offers backtesting, a feature where traders can apply their determined strategy to historical data to anticipate how the strategy would have performed. This can help traders predict potential profitability without risking any real capital. Based on the results, traders can change their strategies before applying them to real-world trades with real capital. A spread is the difference between the price at which you can buy an asset and the price at which you can sell an asset, technically known as the bid and the ask price. If the spread is not factored in, the MT5 strategy tester might show you the opening and closing prices of the assets at the ideal market prices, which is unrealistic and reduces the backtesting accuracy. 

Spread is commonly used in Forex markets, measured in pips and points for other markets. There are generally two types of spreads in the trading world: variable and fixed. If the market has high liquidity, the spread can be tighter than in periods of low liquidity, when it is more relaxed or wider. All in all, adding the spread to your MT5 back tester is of the utmost importance because, without it, the results will be highly skewed and unrealistic for use in real-world trading.