CFDs, spreads and commissions

One of the most important things in CFDs trading is the commission you are going to pay, whether through the spread or through a typical one.

This is a very important issue for stocks CFDs and also for Forex, whether ECN or Market Makers brokers.

In the rest of CFD products, such as indexes, bonds, commodities, the commission is usually included in the spread.

CFD trading commission

The fact that many brokers “say” that they do not have commissions is just not true. Actually, those brokers are quite often more expensive than those who collect typical commissions.

However, brokers that offer trading without commissions tend to be more flexible than those who offer the typical fee.

In other words, when a broker offers CFDs with commission we will have similar conditions to those of the real market, and will have to pay a minimum commission, like 8 or 10 EUR or USD, or 0,1%.

Trading in those conditions is similar to that of the original stock but with more leverage (10 as much usually).

An experienced trader with a sizable account will try to trade with that type of broker. It is not a good idea to open an account with a DMA broker with commissions, when the size of the account is 1.000 EUR or GBP, for instance.

Since each trade will be charged from 5 to 15 EUR or USD as minimum, that type of brokers are not suitable for small accounts. A manageable account for those conditions would need to have close to 10000 or, preferably, much more.

The trader who has less than 5 thousand EUR or USD accounts, should try the more “flexible” brokers, those that not charge “commission”, unless he wants to trade index or other assets.

When you trade through a “no commission for stocks” CFDs broker, it will be “cheaper” to buy small amounts of stocks and therefore more flexible.

For instance, the broker A with commission and the broker B without commission

We buy 5 Apple stocks

Broker A:

Minimum 10 USD commission, the spread is 129.10-129.11

 

The cost is 10 USD, plus the spread (0.05), equals: 10.05 USD

Broker B

Apple Spread (commission included in spread) 129.10-129.30

Cost of buying 5 stocks CFDs: 0.20 * 5 = 1 USD

We can see how the “no commission” broker is better when we trade small sizes. However, when we trade bigger orders, like 200 stocks, the “no commission broker” will be more expensive

Case B: we buy Apple 200 Stocks CFDs

Broker A 10 USD or 0,1% minimum: 25.82 + 2 (spread) = 27.82 USD

Broker B: 40 USD

So, we can see that when the size of the trade increases, the “without commission” broker gets more expensive.

Lowest CFD commission

Brokers “without commissions” are a new generation of brokers for the CFDs, Forex and Binary markets that are directed for the small retail accounts, which is the segment of the market with highest growth the last years.

Just imagine the millions of small accounts opened in Asia the last years.

This can be good and can be bad. Good because it allows the small account to trade with quite a lot of flexibility in the CFDs stocks markets. Bad because, the vast majority of these new traders lack the experience to trade well, and when they face 0.2 or 0.3% in the spread, as real cost of trading, they are decimated quite easily.

Generally speaking, a trader who wants to trade stocks and faces a cost (spread) of 0.2 or 0.3 of the asset every time when buying or selling, should look for big runs like 10, 20 or 30% moves. With that kind of cost you should forget about taking 1% profit and things like that.

The best thing you can do is: trend trading and let your positions ride the trend for big profits.