It costs money to trade equities. Of course the obvious cost is your commission, but there are other hidden transaction costs or trading costs, such as Spread cost, Market Impact cost, Opportunity cost, tax cost, currency cost. There's been activity to measure these transaction costs and to try to minimize them comparing brokers, markets, traders based on these analysis. Many large institutions have used the VWAP price (Volume Weighted Average Price) as the measurement benchmark, though indexers normally use the Close and the Open is also used. One popular method is Implementation Shortfall which is the difference in the price of a paper portfolio which could have immediate execution at the time it was formed and the actual execution that took place. A research paper The Cost of International Equity Trading by Erik Sirri and Andre Perold is the first I'm aware of to talk about measuring trading costs. Transaction costs is important when it comes to trading strategies and many strategies which first appear to work will fail when you include transaction costs. Another problem with comparing traders using transaction costs is that it can be like comparing apples to oranges. If one trader is trading in illiquid stocks and another is trading in very liquid stocks then the second trader should have better performance (ie lower trading costs).
Spread Cost is the cost you incur in buying and selling a stock. This use to be much higher before decimailization took place. Spread is the difference in price between the bid and the ask. You buy stocks at the ask and sell them at the bid, unless you're a market maker or Specialist where you buy at the bid and sell at the ask. If for example a stocks bid/ask is $3.22/$3.27 then the spread is $0.05 or (3.27 - 3.22)/3.22 * 10,000 = ) 155 basis points, or 1.55% of the trade. If you were to buy the stock and immediately sell it, it would cost you $0.05. Buy a million shares of this stock and the spread cost is .05 * 1,000,000 = $50,000, much higher than the commission. It turns out that lower priced stocks can cost a tremendous amount just in the spread and the more illiquid a stock (lack of trading volume) also the higher the spread. The best example of a spread cost is when you go to a currency exchange. Say you want to convert your dollars to Euro's so you give the guy behind the window $100 and he gives you back 92 Euros, then you decide you don't really want the Euro's so you give him the 92 Euros and you get back $97. This $3 difference is the spread.
Market Impact is the cost incurred by your trading, how your stock impacted the price. Trading illiquid stocks will incur a hire impact as the price must rise to get sellers or buyers interested. In theory this cannot actually be measured unless there is a dual universe where in one universe the trade is made and the other it isn't. Typically market impact is measure by comparing the average execution price with a benchmark, typically the previous nights close, the open or the price at trade creation or order submission. What this is trying to measure is information leakage.
Opportunity costs is a cost incurred due to failure to make a trade. Say a trader failed to fill a 100,000 share order and only filled 90,000 shares. The 10,000 unfilled shares can be considered as a lost opportunity. If the price goes up and you couldn't buy the 10,000 shares then you've lost this increase in asset value.
Market Impact and Opportunity costs are usually inversely related. Trading faster usually increases market impact costs and reduces opportunity costs. Trading slower usually reduces market impact and increases opportunity costs.
Tax cost is the cost incurred by active trading which if trading in a taxable account is the marginal tax rate, which can come close to 50% vs. 20% if you hold stocks for one year or more.
If you're purchasing a foreign stock, unhedged, then delaying trading can affect the final cost of the stock depending on fluctuation of FX rates.
Costs are usually measured in basis points, which is 100th of a percent. These trading costs are very important when you're buying or selling large blocks of stock. Measuring trading costs is an art and not a science as there are many methodologies. Costs can be estimated pre-trade and calculated post-trade by many different methodologies.