Portfolio Drag

Portfolio Drag refers to the cumulative negative impact of transaction costs, slippage, and other execution frictions on the overall returns of a portfolio. While individual trades may seem small, the aggregated cost of frequent rebalancing or active trading can significantly reduce long-term performance.

This is particularly relevant for crypto portfolios that engage in high-turnover strategies or yield farming activities where gas fees and slippage are constant factors. Managing portfolio drag involves balancing the need for active management with the costs associated with implementation.

Traders must ensure that the expected returns from their active positions exceed the cost of the friction incurred to enter and maintain them. It is a silent killer of returns that requires diligent monitoring.