Question

Hi, I'm currenlty learning about Forex trading(CANADA). I have a couple of questions of they could be answered:

1.) What are the fee's involved with CFD's and FX markets.

2.) what are the costs of keeping a stock over night what the fee's would be on that.

Answer 1

Question 1)

CFD (Contracts for Differences) are a contractual agreement between a CFD provider (broker) and a trader who wishes to trade in financial assets without actually owning them. The trader takes a view whether the price of the particular fianancial asset will rise or fall over a certain period. The broker also takes a view which is generally the ooposite view to that of the trader. At the end of the period, the party whose view is accurate will receive the difference between the opening and closing price of the asset.

Fees in CFD Market:

In some cases, there are no fees at all, the broker makes profit from the spread (difference between the opening and closing price)

In other cases, fee includes a commission on the price of the underlying asset. This can vary from 0.1% to 0.3% or even more.

Sometimes, when a position is left open overnight, brokers charge a ''overnight premium'' from traders which is generally at a pre-determined level over the LIBIOR. (mostly about LIBOR+2%)

Fees involved in FX markets (Forex Markets):

Commission fees/ spreads charged by a broker on each trade placed. This is charged irrespective of the fact that the trade is successful or not. (compulsory).

a) Spread refers to the difference between the bid price (price to buy) and ask price (price to sell) of a currency.

b) Forex commission has 2 forms:

1. Fixed fee- the broker receives a fixed amount of fee, regardless of the volume of trade.

2. Relative fee- the most common way of charging fee, it depends on the trade size. The higher the volume, the higher the cash value.

c) Additional fees: there are certain hidden fees that must be considered by a trader for calculating costs, like inactivity fee, margin costs, monthly premiums, fees for calling a broker etc.

Question No. 2:

In the CFD market, sometimes when a position is left open overnight, brokers charge a ''overnight premium'' from traders which is generally at a pre-determined level over the LIBIOR or a country's official interest rate. (mostly about LIBOR+2%)

The charge will be effective once a trade position crosses a cut-off time (typically 10 PM, GMT, this time may vary across geographies). If a trader closes the position on the same day within this cut off time, then there is no fee charged.

Also, such fee is paid only on cash CFDs and not for any future securities (a wider spread is applicable in that case).