CFD Fees and Charges
Every broker will charge you to trade on their CFD trading platform, that is a given. The key is to understand what you are being charged for, how much you are being charged and if there are any hidden fees (yes, unfortunately some brokers do this..).
Once you understand the potential fees and costs involved, it will then be up to you to find a CFD broker that offers fair, upfront and transparent trading costs – so you know how much you’ll be charged with every trade. If you’d like to know more, excellent, please read on and learn more about the typical CFD fees and charges.
What Are The Fees and Charges Involved When Trading CFDs?
The standard (and not so standard) CFD trading costs;
1. CFD spread charges
As you probably know, the spread in online trading is the difference between the bid (buy) and offer (sell) price. For instance, if the German 30 (“the DAX”) has a quoted price of 11,400 – 11,401, the spread on this market is 1.
Most brokers will charge you spread when you open and/or close a trade. If a broker does not charge spread then please be wary as they will charge you some other way so do not fall for any marketing gimmick that says “trade with zero spreads“!
Put simply, the lower or tighter the spread, the less you are being charged to trade. The wider the spread, the more you are being charged. So look out for a broker who offers low spreads (and preferably fixed spreads). Brokers will also offer fixed or variable spreads. You need to know the difference between the two and the benefits of each – please read more here.
2. Commissions
Most brokers will only charge a commission fee on stock CFD trades (either as a set fee or as a %), however some broker’s might offer “low spreads” but add on a commission when you open the trade.
Our advice is to find a broker that charges spread-only to open indice, FX, commodity and cryptocurrency trades; and commission-only for stock trades. Please ensure you ask your broker the charges that will be applied to the markets you are hoping to trade before opening an account with them.
3. Overnight financing charges
Overnight financing is the cost of keeping a trade open overnight and will either be credited to your account (for a short position) or debited from your account (for a buy position). Trader’s are charged overnight financing as they’re using leverage to trade and thus are essentially being lent money from their broker to keep the position open.
Overnight financing is typically charged (or credited) as a % of the LIBOR rate (or local cash rate) which is the interest rate that the big banks charge to each other when they lend funds. A overnight financing charge calculation generally looks something like this; Trade size x closing price of market x (2.5% + or – LIBOR rate) / 365 (days per year).
4. Inactivity fees
This isn’t a standard charge at all, however quite a few broker’s think it’s OK to charge you a set fee if you do not trade on your account in a specified period. Absolutely ridiculous and inappropriate in our opinion! It does not cost a broker anything to keep your account open – so why should they charge you for being inactive?!
Please ask your broker if they charge inactivity fees. If they do, we’d recommend looking for another broker! Tip: Don’t give free money to your CFD broker! In fact, don’t use a broker who charges inactivity fees!
5. Guaranteed stop-losses
Most brokers will charge you to use guaranteed stop-losses; some will charge when you enter the guaranteed stop-loss, while others will only charge if the stop-loss is triggered/ executed.
It’s important to ask your broker how much they charge for guaranteed stop loss orders and when they charge you.
6. Exchange fees
Some stock exchanges, like the ASX, charge a monthly fee for real-time market data. This will typically be handed onto any trader’s who trade these stock markets. Again, be sure to ask your broker if they charge for exchanges and if so, for which ones and how much.
Further unnecessary fees to watch out for;
- Trading stop loss and/or limit order fees
- Phone trading fees
- Posted paper statement or trade confirmation fees
- Account closure fees
- SMS alert charges
Most brokers won’t charge for these but some will.
Conclusion
Please always be aware of the charges involved when CFD trading. Our advice is to narrow down the list of brokers that you are interested in trading with and then conduct a CFD costs & fees analysis. Compare each broker alongside each other and see who comes out on top.
Furthermore, the easiest way to get this information (spread costs, commissions, inactivity fees, overnight financing etc.) is to;
- Ask the broker for them – email, phone etc
- Review the brokers ‘Market Information’ section on it’s website
- Place some trades on their demo account and note down the charges.
Finally, always trade with a broker that does not hesitate to provide links or information regarding their platform trading costs. If a broker cannot tell you the spread etc of some of its main markets (ASX 200, Wall St 30 index etc.) or avoid the question, go to another broker.
The most important consideration to take away is the need to look into what you’re signing up to. Always do your research first and find out which broker will provide you with the best value for money!