Get better value for money and increase the return on profitable trades, all by sacking your existing CFD Provider!
You read your latest trading statement and wonder why your account is less than what you expected it to be.
Looking a little deeper at your transaction report you see added costs that you were unaware of being charged to your account, and even though you may have traded well, your account does not reflect this with your actual balance.
It comes as no surprise, considering how banks have been shown to have treated us, that “penny and diming clients” though fees and charges occurs not just with the banking and insurance industries but also in the trading industry. Some well-known brokers will take advantage of people’s comfort with their product knowing the time and effort to change providers is difficult. This is a way for them to increase their profitability through adding multiple charges and fees to their own clients.
One of the really important issues that matters to traders is preservation and protection of capital, which large commissions, wide spreads and hidden fees will easily erode.
PLACES TO LOOK FOR POSSIBLE UNNECCESSARY CHARGES
- High Overnight finance fees (Broker Tricks you’d be amazed by)
- Currency conversion charges (Costs added on conversion to the base currency)
- Inactivity fees
- Credit card charges (Deposit/Withdrawal fees)
- Platform and exchange fees
- Excessive Wide spreads between the buy and sell prices
- Guaranteed stop loss charges
- Phone Trade-Desk charges
Finding these charges
it was right there in front of you, written in black & white and plain English. Not jogging your memory yet? Perhaps it was in their fine print, or maybe their terms and conditions that you agreed to, or even more conveniently, maybe it was buried in a 30-page document deeply hidden on their website.
Of course, when opening a trading account we are meant to read all of the fine print, to double-check everything and cross-examine all details, but let’s be honest, is it really reasonable to believe that every single person partakes in this rigorous task? Product Disclosure Documents can be 50 or more pages to digest. (In saying this I do recommend new clients take the time to read this with whichever broker they intend to trade with)
In a perfect world the answer would be yes, or the answer would be that we trust our CFD brokers enough that we don’t feel the need to interrogate every piece of information provided. But we don’t live in a perfect world, and not everyone is your honest average Joe.
Brokers are not directly stealing from your account, not in conventional terms anyway. Some trading brands are however, charging you excessive fees, transaction costs and commissions, affecting your profitability.
Some CFD Brokers have been known to be particularly well-skilled at adding on additional, unnecessary fees. Unfortunately, they are also quite good at adding these fees to your brokerage charges without you actually knowing anything about it. But not to fear, you can catch on to their sneaky ways! Here are the hidden costs to look out for;
Inflated Overnight Financing Fees
Financing fees are normal practice with CFD trading as a client is using leverage (borrowing funds) to trade the movement of a particular instrument. There is a cost for borrowed funds and this is charged as overnight financing. This is where some CFD brokers can be quite sneaky.
The finance fee is generally a finance fee charged by the provider + the current reserve bank rate.
Typical reasonable broker charge for overnight financing.
Buy (Long) for an Australian instrument: 2.5% + RBA rate / 365
Sell (Short) for an Australian instrument: 2.5% – RBA rate / 365
Sneaky brokers will charge the following:
A higher finance fee for example 3.5%
Instead of the current Reserve Bank rate (Australia) they will charge a 30 day libor or bank bill swap rate which is likely a higher rate. (Most clients will be unaware of this charge)
Tip *** Find out your total overnight financing costs and compare them with competitors ***
Currency conversion charges (Costs added on conversion to the base currency)
This is a sneaky tactic to take fees on every trade that is converted to a base currency.
Some brokers will charge a fee of 0.3 or greater on every currency conversion adding a nice bonus to their bottom line at your expense and adding up substantial costs over time.
Tip *** Find a broker that converts at the spread midpoint or doesn’t charge a conversion fee ***
Inactivity fees are one of the most common ways CFD brokers manage to add to their bottom line. An inactivity fee will often be charged if there has been no activity occurring on your account for a specified period of time. Once the inactivity has passed the brokers time frame, you will begin to be charged an inactivity fee on a monthly basis. This often occurs when traders open an account, deposit funds, and then simply forget it’s there.
Tip *** Don’t give your CFD broker free money ***
Account Maintenance/Keeping Fees
The account maintenance fees are charges that a client may be subject to for simply just having an open account. These charges will be automatically deducted from your account funds and will typically be charged on a monthly or annual basis. Brokers may have a number of requirements that need to be satisfied in order to get this fee waived.
Tip *** There should be no need to pay these fees ***
Trading Software, Platform & Live Data Fees
Trading software, platform and exchange data fees will typically be charged if the client has not fulfilled the requirements stated by the broker and may be charged for utilising the platform and data provided by your CFD broker as well as the trading software. These requirements are usually comprised of a minimum number of contracts that need to be fulfilled by the client in order to have the fee waived.
Tip *** Compare brokers to make sure these fees are not excessive ***
Further Unnecessary and Avoidable Fees Include;
- Trading stop loss/limit order fees
- Phone trading order fees
- Posted paper statement fees
- Posted trade confirmation fees
- Account closure fees
- Email/SMS alert fees
Spread Only Brokerage, Rather Than Commission
Often traditional CFD brokers charge their share CFDs fees through dealing commissions, however sometimes other brokers take a different approach whereby they offer spread-only Share CFD brokerage. This can often be an enticing bonus for traders as they mistakenly believe that trading without transaction costs is an advantage. In reality what sounds like a bargain, is often not at all.
No matter what broker you deal with, or what type of trader you are, you will always, be subject to transaction costs. Every time you enter into a trade, you will have to pay for either the commission or the spread. To avoid being ripped off by your CFD broker, it’s important for you to evaluate whether commission-based brokering or spread-based charges will be the best value for money.
The first question that needs to be asked is whether the CFD being traded is reflecting the exchange price, or is there a ‘spread’ being added to the price? For example, if 1 cent is added to the buy price, and 1 cent is taken from the sell price, it can often add up to a total that is much more than what you would be charged for just the commission.
Let’s look at this Commission vs Spread example;
Let’s say you buy 10,000 share CFDs at $0.50.
Commission: TradeDirect365 commission and underlying share CFD price:
Say a share CFD is trading at $0.49 sell and $0.50 buy with a commission of $5.00 that reflects the underlying exchange price. If the share CFD moves up to $0.59 sell and $0.60 buy, the profit would be 10,000 x 9 cents (i.e. $0.59 sell – $0.50 buy), less commission of $10 ($5.00 x 2) = $890.00
Spread: CFD broker that adds 1 cent spread on the buy and sell with no commission:
Looking at the same share CFD but with added spread and no commission, you’d find a $0.48 sell and $0.51 buy. If the underlying share moves up to $0.58 sell and $0.61 buy. The profit would be only $800 with no commission charges.
The trader who trades the spread rather than commission would be worse off by $90.00 on a single trade. They would also be worse off by a similar amount if the trade was a loss. If you extrapolate this out over a year, you can see how quickly your trading costs can eat into not only your profits, but also your trading capital.
It is imperative to keep your trading costs low if you wish to be a successful trader. It’s crucial you actively examine what you would actually be charged on your trades, rather than just complying with what is advertised by CFD brokers.
Is Your CFD Broker Charging Excessive Costs?
TradeDirect365 is a CFD broker that is one of the very few providers who isn’t trying to rip off the little guy. We provide an honest, transparent pricing approach that focuses on providing our clients with an easy- to- use platform with the best value for money. Our fees, commissions and spreads are some of (if not) the best in the business, and we’ve got nothing to hide.
See it for yourself by viewing our pricing page, but here’s a snapshot;
- Spreads: No added spread for ASX share CFDs
- Stock Trade Commission: From $5 (or 0.07% above $7150 trade value)
- Overnight financing: Long positions 2.5% + RBA rate (currently 1.5% pa). Short positions 2.5% – RBA rate (currently 1.5% pa)
- Inactivity fees: Nil
- Account maintenance/keeping fees: Nil
- Trading software fees: Nil
- Posted paper statement fees: Nil
- Trading stop loss/limit order charges: Nil
- Phone trading order fees: Nil
- Live exchange data fees: $27.50 per month (this is a fee charged by the ASX that we pass on with no extra surcharge added. This is only applicable if you trade ASX share CFDs and is fully rebated if you trade 2 round turn trades (or 4 single legs) of any ASX stock CFD within the calendar month)
The most important lesson to be taken away from this is the need to look into what you’re signing up to.
Do your research and find out what will provide you with the best value for money!
Learn more about trading CFDs with our introductory guides;
- 3 Easy Steps to Start Online CFD Trading
- Five Important Tips for Ambitious Traders in 2018
- Trade the DAX Index CFD -Germany 30 Index
- 6 Essential Steps for Developing a Successful Trading Plan