Learn About The Most Common CFD Fees and Charges

Are you interested in CFD trading but hoping to understand more about the costs involved? Or an experienced trader looking for lower trading costs? You’ve come to the right place!

WeCompareOnlineBrokers.com is here to help you. We are not only here to help you find a great broker to trade with, but we are also here to help educate our viewers.

In this quick guide, we will help you discover what the most standard CFD charges are and then we will list some brokers that offer low cost spreads and commissions, and might be worth considering if you are hoping to reduce trading costs.

What Are The Standard CFD Fees and Charges?

Before we get started on CFD charges, it is important to note that every single broker will charge you to trade on their trading platform. They may vary in how they charge you but the fact is, you will be charged each time you make a trade.

The key here is to understand what you are being charged for and how much you are being charged, as trading costs do vary significantly by broker.

The Spread

Spread is the most common charge when it comes to online trading. 

For those not familiar with the term “spread“, this is the term used to describe the difference between the Buy and Sell price of a particular market.

For instance, the UK100 index is being quoted at a price of 6,800 – 6,802 on your broker’s platform. The difference between the two prices is 2 points, correct? That is the spread on that market.

Brokers will charge spread when you open AND close a trade. You may notice that when you open a trade, your position always goes to negative? That is because you have paid the spread on the opening of the trade.

When trading, always look for a CFD broker that offers tight spreads, as the lower or tighter the spread, the cheaper it is for you to trade. As an example, Broker A quotes 6,800 – 6,801 on the UK100 index and Broker B quotes 6,800 – 6,805. Which one would you choose…? Broker A is charging 1pt and Broker B is charging 5. As long as Broker A is a regulated, reliable broker, we would choose them every day of the week!

Also, look at whether a broker offers fixed spreads or variable spreads.

Fixed spreads are those that do not change, even in times of volatility. This means you will know how much you are being charged at all times, as the spread will not change.

Variable spreads, as the name suggests, vary and this can mean low spreads when the market is quiet, but very wide (expensive) spreads when there is volatility around.

 

CFD Trading Commission

Commission charges vary depending on the company’s broker model. It is probably fair to say that most Market Maker brokers do not charge commission (except perhaps on some stock trades) and that DMA brokers or ECN brokers do charge commission, particularly those who offer the MT4 platform.

Those brokers that do charge commission will typically advertise their services with something like “trade from 0 pip spreads” or “spread-free trading“. Yes, you may be charged very little spread (or no spread at all) to trade with these brokers, but we can guarantee you that they will charge you a lumpy commission fee.

Please ask your broker of choice if they charge commission and if they do, ask which products they charge commission on.. Is it some instruments or all?

 

Overnight Financing (‘Swaps’)

The overnight financing or swap charge is a cost for keeping a trade open ‘overnight’, which is typically considered anything open after 5pm New York time.

This is charged because most online trading is a margined trading product, which means you are borrowing from the broker. As such, they charge you a small fee for lending you the funds.

Financing charges are typically charged (or credited) as a % of the LIBOR rate (or the cash rate in the local jurisdiction). The LIBOR rate is the market interest rate that big banks charge when they lend funds to each other.

An overnight financing charge calculation will generally look something like this:

Trade size x closing price of market x (2.5% + or – LIBOR rate) / 365 (days per year).

Always ask your broker to provide a breakdown of their overnight financing charges so you know how much they will charge you, or whether it is cheaper to close the trade before financing is charged.

 

Guaranteed Stop-Loss Charges

A stop-loss order is there to protect you when the market moves against you. However, a standard stop-loss is free to use but does not protect you when the market gaps through your stop-loss price (usually due to volatility).

The introduction of guaranteed stop-loss orders changed that and you can now pay a small fee and be guaranteed to be closed out at your chosen stop-loss, no exceptions.

All brokers will charge you to use a guaranteed stop-loss order, although how they charge may differ. Some will charge you when you enter the guaranteed stop loss into the system, other brokers will only charge if the guaranteed stop loss is executed.

If you wish to use guaranteed stop losses, it is important that you ask your broker how much they charge for these before proceeding to use them.

 

Inactivity Fees

Beware of this one!

An inactivity fee is when your broker charges you a fee for not trading with them. We find this absolutely ridiculous and unnecessary, and would avoid trading with a broker that thinks it is acceptable to charge clients for not trading with them for a certain timeframe, usually around 3-6 months.

Do not trade with any broker that charges an inactivity fee.

CFD Fees and Charges – Conclusion

Above, we have listed some of the most common charges when it comes to CFD trading. We hope this gives you some idea of what to expect so you do not receive any unwanted surprises.

Lady trading on laptopThe best way to find a broker that charges a fair amount is to research and compare. Contact a few brokers and ask for some examples so you can compare apples-for-apples.

For instance, call or email a couple of brokers that have caught your attention and ask them for the costs involved in trading 2-3 markets, such as EUR/ USD, Wall St 30 index and Bitcoin. Ask them how much spread they charge for each, is there any additional commission charges, how do they work our overnight financing charges and are there any other upfront costs you need to be aware of?

All brokers should be able to answer the above and provide you with costs straight away, or refer you to a ‘CFD Fees and Charges‘ page on their website that lists all the information.

If they cannot answer this upfront, or they confuse you with their response, you should probably stay clear of them. It is not hard to disclose this info, so any broker that cannot (or will not) is not worth trading with.

Low-Cost CFD Brokers Available in 2021

Broker     Official Site   Max. Leverage Regulations Min. Deposit    Spreads From Review
Visit Website >
200:1 $0 0.14 (Fixed)
Read Review
Visit Website >
500:1 $100 From 0 pips
Read Review
Visit Website >
500:1     $200 From 0.1 pips
Read Review
Visit Website >
400:1   $100 From 0.5 pips
Read Review