CFD trading fees
A major advantage of CFD trading in comparison to traditional trading is the fact that the trading fees are much lower. Especially when trading with smaller amounts the costs are very low, so that even the smallest price movement will give you a positive result. But how exactly are the transaction costs calculated when trading CFDs?
No fixed commission
The traditional way of trading often charges a fixed amount per transaction. When trading with more traditional brokers you always pay a fixed commission regardless of the volume. This makes it almost impossible to trade profitably as an individual with a few hundred euros, because the transaction costs and the lack of leverage make obtaining positive results almost impossible.
If you begin with CFD trading you will notice that the transaction fees are
always related to the trades you make. The costs consist of the spread (the difference between the bid (buy) and the ask (sell) price). If the spread is 2 pips, this means that you pay 0.0002 cents per unit traded. So if you trade EUR / USD with €100, a leverage of 1:200, and a spread of 2 pips, the transaction costs equal €4.00 (100*200*0.0002 = 4)
This implies that you already make profits when the price rises with just 0.0002 cents! The transaction costs are very low so that even in the short run and with little money you can make nice profits. The transaction costs are always immediately subtracted from your balance so you always start with a slight loss when trading CFDs.
if you decide to hold a position until the next trading day, you pay a so-called financing premium. The broker provides the largest part of the financing charges through the leverage. When a position is held for just one day, the financing costs are zero. If a position is held for more than one day the broker will charge a financing premium.
For some short positions you will receive a financing premium and for
long positions you pay a financing premium. You should examine the financing conditions and costs per instrument before opening a trade. These costs are often calculated by subtracting the broker margin divided by 365 from the market interest rate.
The financing costs are usually very low and depend on the specific terms of the broker. For example: at Plus500 the financing premium for EUR / USD is 0.0133%. Although CFD trading is mainly used for short periods of time (1-30 days), because of the low financing costs it is also perfectly possible to trade for longer periods.
During weekends you pay financing costs as well, as the stock market closes during weekends and positions cannot be opened or closed then.