All You Need to Know About CFD Commissions

Updated on: 6 January 2020

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What is trading? How does trading work? How do I start trading? What are the costs involved? What are the risks?

These are some of the most basic questions about the trading industry that will immediately hit you as a beginner. All equally important, which means your future success depends on having as many answers as you can.

However, this article will deal with only one question – the one regarding the costs of trading. And, from both my personal experience and that of others, I have to tell you that there are quite a few to keep in mind.

Obviously, the first cost that comes to mind is the direct result of a failed trade. Which is synonymous to lost capital. But this is no surprise to anyone, which is why we will only deal with those that are less obvious, because those are where the real danger lies.

The list of all the CFD trading costs

First of all, what you need to know is that these costs are not universal. In the sense that not all brokers have them. Their size may vary as well, also depending on the broker and on the market you decide to operate on.

With this in mind, here are the top trading costs you need to be aware of:

1. The leverage

Here is the problem. The leverage is part of the natural losing mechanism. You lose a trade, your capital takes a hit. So, according to what I said earlier, I shouldn’t be talking about trading losses, because everybody is already aware of those, even beginners, right?

Right. I have to talk about the leverage, however, because of the way it functions. You see, even if it is part of the losing mechanism, what leverage does is multiply your losses considerably. We are not simply talking about losing your capital, we are talking about losing capital you don’t have.

This is one of the main dangers when trading with CFDs and the leverage is the ultimate losing mechanism, if you are ignorant of how CFD trading works.

2. Commissions

For the most part, CFD assets are commission free. We include here currencies, indices, bonds and commodities. Shares, on the other hand, are not. But the way they are charged depends on the market you are operating on and those details can be found on the platform you have made an account on.

Take note of how shares are charged through your broker, to eliminate all possibilities of unexpected capital leaks.

3. Overnight costs

This is a commission that comes in effect when trading CFDs that have no expiration date in place. The purpose of this fee, that only occurs during night time, is to compensate for the cost of the leverage you are using for extended periods of time.

There are also specific daily costs linked to your short positions, in case your base rate goes extremely low during those times. These details will also differ according to the broker, so make sure you get everything right before signing any contract and opening any account.

4. Charges for the GSLO

GSLO stands for Guaranteed Stop Loss Order. You may already be familiarized with the notion of stop loss orders. These are features that allow you to minimize your losses or simply instruct your position when to terminate. GSLOs, however, function differently than standard stop loss orders.

A regular stop loss order, when triggered, will wait for the next price update before taking effect. Needless to say, this will expose you to unnecessary risks during that timeframe. A GSLO, on the other hand, will immediately take effect when the threshold price is being reached.

All you have to do is to point out a limit price and the position will close when that value pops. Obviously, with a higher degree of security, comes the need for an extra payment. This is why GSLOs are paid services. The way they are being charged, however, depends on the number of units your position holds and the broker’s policy in that regard.

5. Switching to a new futures contract comes at a cost

The futures are trading contracts that specify the date at which a purchase will automatically be made. As the contract specifies, the seller is forced to sell and the buyer is forced to buy at that particular moment in time.

Prolonging the life of your current futures contract by opening a new position can be done, but at a cost. More precisely, you need to pay half the spread to allow the transaction to happen.

6. Regular market data fees

I have used the world regular, but they are not that regular after all. We are talking about the situation where you want to see CFD prices on the Australian and Hong Kong trading markets. In that case, you are required to pay a specific fee, unlike the rest of the markets, for which the fees are 0.

7. The inactivity CFD trading charges

This cost comes with the majority of the brokers, which will start charging your account the moment it starts being considered dormant. Some will charge you for £10 every month, some will do it for less, some for more, but there will be a fee that will come in effect after a certain period.

Usually, the dormant status comes in effect when your account has recorded no trading activities over larger periods of time (usually, a period of at least 1-2 years). The monthly charge will continue either until you resume your activity, or until your account empties out.

So, make sure you remain active. Or close your account, for that matter.

8. Live charts and live price data fees

These are circumstantial fees, meaning that there are specific cases where they don’t apply. Not all brokers use them, but some do. In simple words, if you require access to either live charts, live price feeds or both, you will pay a monthly fee unless you transact a given number of times every week. Usually 3-4 times.

If you don’t then the fees will come into effect.

9. The DMA fee

DMA stands for Direct Market Access and it is free to use for both forex related trades and CFDs. However, accessing the price tags of some shares comes at a cost and you might have to pay a monthly fee for that.

Can I cut some of the losses?

Sure you can. Some of these CFD trading taxes can be easily avoided by paying attention to your contract with the broker. Be very careful what shares you decide to trade with, because, for some, commissions may apply, don’t trade overnight, look for free risk-limit features, like stop loss orders and keep your account active.

Aside from this, it is imperative to research the market and look for the cheapest broker you can get. Not all of them apply the same fees and commissions, so you might be able to find something more advantageous, if you take your time and look for it.

This being said, don’t get scared at how many CFD costs there are. Just follow your game, stay focused and avoid all unnecessary expenses, to the extent that you can.

Everything else is pure profit. Good luck!

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