Break-even AUM: at what size does your edge die? — with a calculator

ALPHAASSAY RESEARCH · TOOL · INTERACTIVE CALCULATOR

Every edge has a death boundary in capital: the assets-under-management at which its own market impact eats the entire margin that made it worth trading. This calculator locates that boundary. It takes your gross edge per trade, your gross Sharpe, the traded instrument's daily volatility and its average daily volume (ADV), and returns the AUM at which the strategy's net Sharpe is pushed down to the survival floor of 0.5 — the point where the edge stops being distinguishable from costs. The impact model is the empirical square-root law with a calibrated coefficient c = 0.69, published with its uncertainty band (0.63–0.77), and it is only valid up to a participation of 10% of ADV — beyond that the honest answer is „beyond model validity", not a bigger number. This is a mortality figure, not a sizing recommendation: the same number appears as break_even_aum_usd in the cost gate of every AlphaAssay verdict, and its refusal case has its own failure code, CAPACITY_MODEL_RANGE_EXCEEDED. The calculator runs entirely in your browser; nothing is uploaded.

At what AUM does the edge stop paying for its own footprint?

The default inputs (0.30% per trade, gross Sharpe 1.5, 1.5% daily volatility, $200M ADV) reproduce the $1.87M row in the table below — same formula, same defaults. Fixed model constants: impact coefficient c = 0.69 (band 0.63–0.77), survival floor Sharpe 0.5, participation cap 10% of ADV, capital deployed per trade = 100% of AUM.

Where do edges die? Worked examples

Notice what drives the boundary: it is quadratic in the per-trade margin and inverse-quadratic in volatility. A thin edge on a volatile instrument dies at sizes a single retail account can reach — the third and fourth rows are not exotic inputs, they are typical crypto-strategy claims.

The formula, step by step

Step 1 — the cost budget. Only the margin above survival is spendable: budget = gross% per trade · (1 − 0.5 / gross Sharpe). A strategy at gross Sharpe 0.5 or below has no budget — it is already at the floor before paying any impact.

Step 2 — the impact model. Round-trip market impact follows the empirical square-root law: impact% ≈ 2 · c · σ_daily · √(trade size / ADV), with c = 0.69 calibrated against published impact studies (uncertainty band 0.63–0.77 — the band is shown, not hidden).

Step 3 — solve for the boundary. Impact equals budget at break-even AUM = ADV · ( budget / (2·c·σ_daily) )². Above it, the net Sharpe is below 0.5 by construction.

Step 4 — the honesty clamp. The square-root law is only calibrated up to ~10% participation of ADV. If the solved boundary exceeds that, the model does not extrapolate — it reports „beyond model validity" and stops. An impact model that keeps producing numbers outside its calibration is a backtest flattering you by other means.

Why a death boundary and not a capacity recommendation?

Because the two numbers point in opposite directions. A recommendation says „deploy this much"; this figure says only „above $X, the arithmetic says your edge is gone" — it can devalue a strategy, never endorse one, which is the same demote-only rule every AlphaAssay verdict follows. Costs are also where most backtests are manufactured: frictionless fills die first at the cost gates (no_net_edge, cost_stress), and the capacity check is the same interrogation asked at scale. If your backtest has never been charged its own footprint, it has other problems too.