The other costs of Trading
The Spread is likely to be by far the largest cost an active trader will incur, followed by overnight funding if they hold positions on spot or cash markets overnight. Let’s have a look at the other costs.
Commission
Commission is usually charged when traders trade either CFDs or margined FX, spread bets will normally not incur a commission but make sure you check all this before placing a trade. Commission is charged on both legs of a trade (opening and closing) and is typically a % of the notional value or a function of the volume traded – for example, $4 to trade 1 lot.
Transfer, account and exchange fees
Please be aware of other fees that you as a trader may incur, these may include money transfer fees. account fees and exchange fees.
A money transfer fee is the cost of moving money around, from your bank account to your trading account. These used to be lived on things like card transfers and needed to be managed but now, with most governments banning additional charges on card transactions, they don’t really exist. However, this might not be the case in your jurisdiction so please make sure you check.
Sometimes account fees are levied on inactivity and other account-related activities. Lots of brokers don’t charge these types of fee anymore so if yours does you might want to talk to them about removing them.
A fee to be aware of is an exchange fee. Centralised exchanges, like the LSE, charge a per-user fee to brokers for using their individual company pricing data. Brokers can pass this on to the users that use this data – this is why when in a trading platform you sometimes need to confirm you are trading equities before getting access to live markets.
The final direct fee to be aware of is on Guaranteed Stops, we won’t go into the details of what these are here, but you need to be aware that they will incur a fee if used.
Analysis and education
A well-informed trader should be prepared to spend something on market analysis and education.
Trading is a business
The overriding point we’re trying to make during this course is to manage costs as if you are running a business. Know what they are, keep a record of them and scrutinise them regularly.
- Spread and overnight funding are typically a trader’s largest costs.
- Commission is charged when traders trade either CFDs or margined FX. It is normally a volume-based charge.
- Other fees might include money transfer fees, account fees, exchange fees and guaranteed stops.
- Be sure to factor in some cost for analysis and education.
- You now know what the costs are, treat trading like a business and actively manage them.
Let’s move on and sum up the course.
