The Hidden Costs of Trading

It is well known that most financial products come with associated costs. For long term investments, there are typically management and admin fees. For hedge funds and money managers, there are performance based incentives. When it comes to trading, there are fees like swaps and spreads. All of these are direct financial expenses that you incur when taking risk on a new financial product. What is seldomly mentioned, are the non-financial costs that most traders and investors incur as well.

What are the actual costs in trading?

In the context of leveraged CFD trading, there are two main costs: Spread and Swaps.

Spreads are universal. This is the difference between the buying and selling price of an asset. The difference is the “fee” that the broker earns for facilitating your trade.

Swaps are a fee that you incur for holding a leveraged trade overnight. It is essentially the interest owed on the borrowed portion of a leveraged trade, charged on a daily basis.

These are the two costs you’ll see on most trading accounts, but depending on your account type, you might have other costs. Things like commissions, minimum costs per trade, or monthly fees might be included as well.

Make sure you check with your account manager what all your trading costs are, and that they are competitive against other brokers.

If you don’t have an account manager, or anyone to help deal with your trading queries, then reach out to the ProTrade team to ensure you are trading under the best conditions possible!

What about the non-financial costs?

Non-financial costs that come with trading are things like the opportunity cost of using your money to trade instead of putting it in a savings account or paying off debt. If you’re not making money trading, while interest is piling up on debt, your money may be better placed elsewhere!

Other non-financial costs like the time spent sitting in front of the charts, and the emotional toll of learning to cope with losses can weigh heavily on individual traders. While not an actual expense, these certainly cost you energy and can take away from doing important tasks or dealing with responsibilities. If you’re consistently not making money, it can dampen your spirits and affect other aspects of your life.

Think about it this way: if I’m not in a good financial position, it’s likely I won’t trade well, and I’m more likely to lose money.

The same applies to your mental wellbeing. If you’re upset, hungry or tired, you’re more likely to not make good decisions, and more likely to lose money.

Having a mentor, financial advisor, or even a representative from your broker to discuss these things can be very beneficial to help you make sure you are making the best choices for your current situation.

Knowing which costs, both financial and non, you might be facing while trading could be the difference between success and not.

So how do I stay on top of all the costs with my trading account?

This is again where having a friend, mentor, or relationship with your broker helps. The first step is always making sure the people you are dealing with are regulated with the FSCA to be dealing with your money.

Having a friend, mentor or independent party can help you manage the non-financial costs that you’ll experience with trading. Being able to bounce ideas off of, express frustration to, and learn from someone else is extremely valuable.

Building a relationship with your broker, either through an account manager or familiarising yourself with the support team will help you understand the costs you’ll be incurring.

Normally, spreads are visible on the chart, while overnight swap costs can be found on your brokers website. And if you can’t find it, simply ask your broker to give you the information, and they can help put confusing figures into real Rand amounts for you.

The costs you incur on your trading account should be transparent, easy to find and most importantly competitive. If you are trading and do not enjoy the experience, or think your broker could do better, contact ProTrade or book a free session with them to know your money is with the best broker for you.