CFD Fees
You will encounter various CFD fees when buying and selling contracts for both short and long term trading strategies. These charges will come in many forms, including direct fees for each trade, holding costs and transaction charges. This article will guide you through the different CFD trading fees, explaining the meaning of each, how they are calculated, how best to compare them and how to work out their impacts on your result. We’ve also listed the best brokers with low CFD trading fees.
Brokers With Low CFD Fees
Types of CFD Fees
Spreads
Spreads may be the most commonly known of the CFD fees, referencing the difference between the buy and sell prices (bid and ask rates) for a trade. The spread is one of the main ways that CFD brokers generate income for themselves.
This is done by quoting a larger bid price and a lower ask price for an asset than its market price, making money from the difference paid by traders. Essentially, the wider the spread, the greater the returns you need to break even and beyond.
This type of CFD fee is heavily impacted by market volatility, where higher fluctuations in price will typically correlate to wider spreads as a means for brokers to cover the increase in risk.
Commissions
Whilst trading contracts for difference, you will likely only face commission fees and charges if you are handling stocks and shares CFDs.
Commissions typically vary between different brokers and are charged at every transaction made, i.e. when both opening and closing positions. Usually, there is a minimum commission charge per trade so that brokers can still make back their losses even when clients are trading at low volumes. This also varies between different brokers. Note, if a commission is applied then the spread is often not marked up or zero.
Account Charges
Various brokers, such as IG, CMC Markets, Plus500 and Trading212 include additional CFD fees through account costs.
Typically these are related more to account inactivity than activation, whereby after a certain period of inactivity your account will have a set amount deducted from it. This will be done periodically until your funds reach zero and you can reactivate your account by making trades. If not, you or the broker may close the account.
Overnight Fees
Most brokers charge CFD fees for holding your positions overnight when they do not have an expiry date, called overnight swaps. These can also be referred to as holding fees or financing charges.
These costs can be both negative and positive, depending on the direction of your trade, and are usually calculated using percentages. Again, these vary between provides, so IG and eToro overnight CFD trading fees will likely differ from those that Trading212 and CMC Markets charge.
These costs are normally calculated based on a standard published rate, e.g. the London Inter-Bank Offered Rate in the UK. Once you open a CFD position, you will receive interest charges on the number of days for which you hold the position open. This will be with said standard published rate plus or minus ~2% (depending on if you have a long or short position and the broker’s rates).
Usually, the final end-of-day asset price is used for the calculations, which are done daily. All brokers charge swaps in the same way and these CFD fees cover the funding costs associated with the brokers opening your position with borrowed funds.
It is worth pointing out that the overnight CFD fees will always have a negative (opposite) price, i.e. it will always be taken from your returns, or your balance.
Additional Services
Some brokers offer additional services that can incur additional CFD fees. For example, you may be charged for guaranteed stop-loss orders, which differ from normal ones by ensuring that your positions are closed at the price you specify, regardless of any slippage that may occur due to local volatility and liquidity.
Other additional services include direct market access (DMA) CFD fees, where some brokers charge a fee to access the deeper, “live” DMA reference prices for certain shares. You may also be charged to access special, more detailed financial graphs, charts and interactive software. Sometimes, the extra costs may be worth it, if you believe the services offered by the broker will give you an upper hand.
Deposits & Withdrawals
Transaction costs are often overlooked as CFD fees but can make a big difference. These charges can vary greatly amongst brokers.
Many will offer free deposits and withdrawals in an attempt to remain competitive, taking on these charges elsewhere but maybe passing them on in the form of other charges. Some brokers, like IG, charge fees for deposits using credit cards, usually around the 1% mark. You may find that some payment methods for one broker are free while others are quite expensive. For example, debit cards, wire transfers and PayPal are usually cheaper than some e-wallet and credit card alternatives.
Withdrawal fees may also be charged, depending on the broker and method. Moreover, there is usually a minimum charge for those brokers that use transaction fees so that they are still covered for small payments.
Margin Rates
One of the most attractive features of CFDs for day traders is the ability to use leverage for margin trading. This allows investors to open larger positions than they would usually be able to afford. However, there are also additional CFD fees associated with margin trading called margin rates.
Leverage trading is much like taking out a loan from your broker for a position and, much like regular bank loans, margin trading comes with interest. The rate is often charged as a percentage (usually only a few per cent) of the loan taken out, which is then taken away from the results of the trade. If you are keen to use margin trading, check out our list of brokers with the lowest margin rates.
CFD Fee Calculation Examples
Spread
Suppose you want to go long on 100 lots of Stock A, which has a bid/ask of 1,200/1,198, so you stake $120,000. After a while, your speculation that the price will rise proves correct and the value of Stock A has increased to 1,225/1,223. You then sell your CFDs at the price of 1,223. for a profit of $122,300.
So, even though the price of the asset rose by 25 points, you would only get back 23 points worth of profit, as the spread took the rest. Notably, you would need the price of Stock A to rise by 2 points before you break even on your trade, thanks to the spread.
Commission
Commissions, the other primary CFD fees, work in a slightly different way. Suppose your broker takes a 0.1% commission per trade and you again wish to buy 100 lots for $120 per share. Your stake would again be $12,000 but the broker would take a 0.1% commission when you open the position, i.e. $12 (100 * $120 * 0.1%).
If the asset value rose to $130 per share and you decided to sell, you would initially get back $13,000 from the trade. However, you would have another round of commission charged at $13 (100 * $130 * 0.1%). So, even though the trade made $1,000, you will have paid a total of $25 commission, coming away with a net profit of $975.
Overnight/Holding Fees
Overnight CFD fees, or swaps, often seem more complex than they are. For this example, consider that you have gone long on 1,000 lots of a CFD at a buy price of $4.50 and have not closed the position before the end of the trading day, at which point the price is $4.85.
Calculating the overnight financing rate is done as follows: (position size * closing price * [standard published rate + broker % value])/365. So, if the standard published rate is 2.5% and the broker % value is 2%, the holding fee for the above position would be (1,000 * $4.85 * [2.5% + 2%])/365 = $0.66.
This calculation would be run for every night you held open the position.
Comparing CFD Trading Fees
Given the small profit margins often seen when day trading, it is vital that you take the time to analyse and compare the CFD fees imposed by different brokers before opening an account. If you wish to maximise your chances of success, you likely want only the cheapest brokers’ CFD fees compared.
When comparing CFD trading fees, you should consider the following factors:
- What sort of CFD trades will you be making? For example, if you are planning to trade stock/share CFDs, then the CFD fees relating to commissions would likely be more important than the spreads.
- What markets are you looking to trade in? It is common for different markets to have slightly different fees and prices. For example, UK stock CFDs usually handle commissions at a percentage level, whilst some US stock CFDs are charged at cents per share.
- Are you planning to hold positions open for more than a day? If you are not, then overnight holding fees are not likely to have an impact on your trades and could be less important to minimise.
Finding a broker that offers you the lowest CFD fees comes down to personal preference. Your goals will define what the costs of CFD trading will be and what other features you are willing to sacrifice. For example, some budget brokers may have very low fees but might not offer the markets you are looking for or trading software that is sophisticated enough for you.
There is a huge number of brokers out there and choosing from them all can be a daunting prospect. For a full guide to comparing CFD brokers by all their relevant features, see here.
Final Word On CFD Fees
CFD fees can quickly eat away at the profits, or increase losses, of those who are not ready for them. There are many different types out there and not all brokers will implement them all, so it can be difficult to take them into account. However, it is vital to your success that you fully understand the costs associated with your trading, so check out our guide above for comparing fees before choosing a broker. For a list of our cheapest CFD brokers see here.
FAQs
Do I Need To Pay A Withdrawal Fee When CFD Trading?
This will depend on your broker and the transaction method you are using to make your withdrawal. You should make a point of checking a broker’s specific fees for your preferred method before opening an account.
When Are Overnight CFD Fees Calculated?
Overnight CFD fees are calculated at the end of each trading day that your position is open. If you exit your position before the end of the first day (i.e. the day you opened it), then you will not be charged swaps.
Do I Need To Pay Commission When Trading Share CFDs?
No. Commission is only paid when trading with share/stock CFDs.
Are Spreads Used For Share CFDs?
No. Brokers generally make money from commissions rather than spreads when dealing with stocks and shares.
Which Brokers Have The Lowest Fees?
CFD fees vary from broker to broker; some may have very low trading charges but big swaps and others might charge high transaction fees. Some brokers with competitive CFD fees include Pepperstone, Oanda, CIMB, Degiro, XTB, eToro, Questrade, and Saxo.
Do All CFD Brokers Charge Inactive Account Fees?
No, inactivity fees vary by broker and many do not charge anything. Be careful, though, as some predatory brokers will charge incredibly high inactivity fees that could empty your CFD trading account quite quickly.