CFD Trading Fees

Anyone opening a contract for difference (CFD) trade is likely to encounter costs and charges as part of that transaction. These CFD fees can vary significantly depending on the market and broker in question, so it’s important that you understand how they function.

This guide explains the different types of CFD trading fees, as well as explaining how the charges work in a simple working example. Read on for a list of the key factors to look out for when choosing between the top brokers with the lowest CFD fees.

CFD Trading Fees Explained

CFD fees consist of costs or commission charges associated with trading contracts. These costs can vary significantly, but they all pose a risk to your hard-earned profits.

Some of the most popular trading brokers, such as Pepperstone, IG, eToro, and XTB all charge CFD fees to their UK investors. These charges will come in different forms and can be applied each time that you enter a trade, or as account fees or transactional charges.

Types Of CFD Trading Fees

There are various trading fees associated with trading CFDs. The types of fees include commissions, overnight charges and spreads. They may fluctuate significantly depending on the length of the position being held.

As with all costs when it comes to trading, make sure to do your research before opening a live account with any broker. Completing your due diligence will help you to prevent losing a significant percentage of profits to unexpected charges.

Some of the key CFD fees to look out for include:

Spreads

Spreads are a well-recognised method that trading platforms use to generate income. The spread is the difference between the “buy” and “sell” price of a financial instrument. It may also be referred to as the “bid-ask spread” or “buy-ask spread.”

To purchase any contract, you will be required to pay the ask price, and to sell it, you must pay the bid price. As with commission fees, spreads will vary depending on the volatility of the underlying market.

Brokers will often quote the price of an asset at a larger bid price compared to its live market price, to make money from the difference paid by traders. For example, typical spreads charged by eToro include the GBP/USD forex pair from 2 pips and silver and oil from 5 pips.

CFD spreads may be offered as floating or fixed. A fixed spread is the difference between the bid and the ask prices that remain constant regardless of market conditions. On the other hand, floating spread live prices fluctuate in response to market dynamics such as demand and trading activity.

Commissions

Typically, you will not be liable to pay CFD fees in the form of a commission on forex pairs or commodities investments. However, there are often commission fees when trading stocks. These costs are not set, and will vary depending on the broker and financial exchange in question.

Note that opening and closing a position is categorised as placing two separate trades, which means that you will be liable for a separate commission charge each time. For example, IG charges commission fees for investors trading global shares, as these CFDs are traded at the live market price.

In exchange for this real-time service, the broker applies a commission. Trading on the UK stock market with this broker would incur charges from 0.10% per side, with a minimum online fee of £10. Similarly, CMC Markets applies a commission charge of 0.10% to trade CFD shares on the UK market, with a minimum fee of £9.

Overnight Charges

Many brokers or exchanges apply CFD fees known as overnight charges for holding a long-term position. These contracts are considered to be an investment, meaning you are essentially being loaned the funds required to open your position, outside the initial deposit you’ve paid.

To keep your position open after 22:00 GMT, an interest adjustment will usually be made to your account to reflect the cost of keeping your position open overnight. This will be visible as a percentage in your account profit and loss statement.

The interest rate for CFD trades is normally calculated at a margin of around 2-3% above the overnight charges of the London Interbank rate. Formulas to calculate these costs will vary between asset classes and brokers. Fees are calculated according to market conditions, and can change on a daily basis.

The best brokers will provide an overnight fee calculator for CFD trades, so you can understand the exact interest financing charges applicable to your position. eToro, Plus500, IG, XTB, and CMC Markets are all examples of transparent brokers when it comes to CFD overnight holding costs.

Always double-check the specific CFD overnight financing charges before you open an overnight position. Remember that open positions held past 22.00 GMT on Fridays may be charged three days’ worth of overnight fees to cover the weekend.

Exchange Rate Fees

Depending on your trading account’s base currency, funding currency, and conversion settings, there may be a need for currency conversion. For example, as a UK investor, you may want to open a CFD trade in the EU stocks and shares market. If you hold an account with a GBP base currency, the broker may convert any realised profit, losses, funding, dividend adjustments or commissions from EUR back to GBP. These exchange costs are often quite minimal, typically around 0.5%.

CMC Markets provides the opportunity for UK traders to trade CFDs on US stocks without any applicable currency conversion charges. Degiro charges a one-off exchange connectivity fee for UK investors to set up trading opportunities outside of UK markets. The fee is levied upon those trading on worldwide exchanges including within Europe or the US. This fee is £2.50 (or 0.25% of your account value) per connected exchange, per calendar year.

UK Taxes

When trading CFDs, UK traders may be required to pay capital gains tax on profits. Unlike other forms of trading, CFDs are exempt from stamp duty costs, as you do not own the underlying asset. You can also use CFDs to offset any losses against profits from other CGT liable investments.

CFDs are therefore often utilised as a hedging tool due to their tax benefits. However, tax treatment depends on individual circumstances, so always ensure to check your taxes with a registered professional.

Leverage

One of the best ways to improve your profit potential with CFD trading is to utilise margin. However, as with all money lending, this comes with an interest payment requirement. CFD margin rates will be charged by the broker, as a payment back for the borrowing of funds.

Typically, this fee is charged as a percentage of the money borrowed. Amounts may vary significantly between exchanges. For example, margin rate fees at Interactive Brokers are 3.2% for GBP accounts with an account balance of less than £80,000.

Other Services

There are a few other minimal charges to be aware of with CFD fees. Dormant account fees may be applied if you leave a profile inactive for some time. These charges are typically applied after 3-12 months of inactivity. The broker will take a set deduction from your live trading account.

Additional software such as advanced charting packages may also come at a price. These are usually optional, depending on the broker. Although these features come at a cost, it is worth considering the improvements they could make to your overall trading experience.

Example

Here’s an example of investing in UK shares that includes common CFD trading fees:

You want to invest in CFDs in BP PLC shares, and you have £5000 to trade with. The current price of a share is £40.20, but you believe the share price will increase to £41.10. In this case, the bid-offer spread is £41.10 minus £40.20 = £0.90 per share.

This trade will be liable for a commission fee of 0.10% to open and close the position. If you plan to execute as a long-term position, an overnight financing fee will be applied: the broker has set this at the interbank rate plus a 2% margin fee.

With your £5000 investment, you can purchase 124 contracts at £40.20 per share, making a total investment amount of £4984. The share price of BP PLC does increase to £41.10 in 11 days. Those 124 contracts now have a value of £5096 (£41.10 x 124), meaning a total profit of £112.

The CFD trading fees will now be charged. These include:

• Commission – To open the position, you will be liable to pay £5 (0.10% x £5000). This will be applicable again when closing the position. Total: £10
• Overnight Charges – Interest rate fees plus the brokerage margin must be paid to hold positions open overnight. Let’s say this total was 2.7%. As the position was held for 11 days, a total of £4.05 must be paid. This is calculated as ((124 x £40.20) x (0.027/365)). As the position was live for 11 days until the price was hit, this is multiplied by 11.

In this example, your total profit after fees (but before taxes, payment for additional services or account charges) would be £97.95 (£112 – £5 – £4.05 – £5).

How To Compare CFD Fees

Spend some time comparing CFD trading fees at different brokers. Be cautious of those promoting “no commission” or “no fees” as there are often hidden charges applied elsewhere. Those brokers with the lowest CFD fees may not always provide the level of service required to succeed.

Some of the key factors to consider when comparing brokerages include:

• Length Of Trade – Does your trading strategy require long-term positions to be held open? As you will be trading on leverage, overnight charges may be a significant cost factor.
• Markets – Depending on the markets you are interested in trading, the types of fee will vary. For example, if you are planning to trade the UK stocks and share market, CFD commission-based fees are important to look out for. On the other hand, forex or commodities investments will usually require a comparison of spread costs.
• Platform And Tools – Access to third-party tools or advanced software may come at a cost. The best brokers will provide free demo account features, so you can get a feel for additional tools before committing to a payment.

Outside of CFD costs, other factors that should also be assessed when comparing brokers include access to responsive customer service, educational content, demo account services and mobile app compatibility.

Not all brokers will be completely transparent when it comes to CFD trading charges. It might be worth studying the terms and conditions page or contacting their customer support team if you cannot find information on any fee mentioned in the section above.

CFD Fees Vs Share Trading Fees

One of the major differences between trading CFDs and share trading is the fee structure. Kelvin Wong, a market analyst for CMC Markets points out that “A long position on a CFD requires a smaller amount of capital to initiate versus a similar position on a traditional share.”

This is because when trading a CFD, you are simply speculating on a market’s price without taking ownership of the underlying asset. During this transaction, you are only required to pay a fraction of the upfront value of your trade, known as the margin. This means you can hold a position of equivalent size in the stock market for less money.

When you buy a physical share you are paying for the full cost of the asset upfront. This additional cost will usually result in your fees being higher too.

Bottom Line On CFD Trading Fees

It is not surprising that many traders get confused by the charges they incur when trading CFDs. Fee structures can vary from broker to broker and from market to market.

Traders should always seek to minimise their CFD fees in order to build a greater profit margin over time. As CFDs are leveraged products, remember that trading is inherently risky and you could make a loss greater than your initial deposit.

Use our list of brokers with the lowest CFD fees to start trading.

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