Q. How do I calculate brokerage costs on a trade?

To answer this question, you’ll need to calculate the brokerage you’ll pay to enter your trade and the brokerage you’ll need to pay to exit your trade.

To do this, we’ll need to lay out all the necessary information to calculate what brokerage costs you’ll pay…

Let’s use a recent Richemont trade as an example and some assumptions:

Portfolio value: R120,000
Trade: Richemont
Type: Long (Buy)
Brokerage rate in: 0.30%
Brokerage rate out: 0.30%
Entry: R2,412.19
Stop loss: R2,229.03
Take profit: R2,705.20

Calculation #1: Calculate your ENTRY brokerage cost with CFDs

Step #1: Know your max portfolio risk per trade

Max % risk = (Portfolio value X 2%)
= (R120,000 X 2%)
= R2,400

Step #2: Find out the rands risked in trade
Rands risked = (Entry – Stop loss)
= (R2,412.19– R2,229.03)
= R183.16

Step #3: Calculate the number of CFD contracts to trade

No. CFDs = (Max risk ÷ Rands risked)
= (R2,400 ÷ R183.16)
= 13

Step #4: Calculate your ENTRY exposure for the CFD trade

Entry exposure = (Entry price X No. CFDs)
= (R2,412.19 X 13 CFDs)
= R31,358.47

Brokerage in = (Entry exposure X Broker rate in)
= (R31,358.47 X 0.30%)
= R94.07

This means, you’ll need to pay a brokerage of R94.07 in order to buy (go long) 13 Richemont CFDs.

Now we can move onto the next brokerage leg.

Calculation #2: Calculating your EXIT brokerage cost with CFDs

Step #1: Work out your EXIT exposure for the CFD trade

Exit exposure = (Exit price X No. CFDs)
= (R2,705.20 X 13 CFDs)
= R35,167.60

Step #2: Calculate your brokerage leg out

Brokerage out = (Exit exposure X Broker rate out)
= (R35,167.60 X 0.30%)
= R105.50

Step #3: Calculate the total brokerage for the CFD trade

Total brokerage = (brokerage leg in + Brokerage leg out)
= (R105.50 + R94.07)
= R199.57

This means, if the trade hit your take profit level you would have ended up paying a total brokerage of R199.57 for your Richemont Long trade.

Now you know how to calculate each brokerage leg in, out and total for whenever you take a CFD trade with Red Hot Storm Trader or Pickpocket Trader.