Q. “Last week you spoke about the different hidden CFD costs that are involved when trading… You briefly mentioned something about entry and exit exposure when it comes to brokerage. Could you please follow up with a formula on calculating the brokerage costs you would pay from the most recent Red Hot Storm Trader trade you sent out with Anglo American?”
A. Thank you Stephen, yes last week I just listed the different costs that were involved with trading CFDs.
I will gladly break up the steps to calculate the brokerage costs involved with CFDs.
Remember, brokerage is the amount of money (or a percentage of the total exposure of your trade) you’ll pay a broker in order for him or her to facilitate and execute your trades.
Here are the trading specifics from the Anglo American trade we banked a profit from last week:
Portfolio value: R60,000
Share: Anglo American CFD
Entry price: R641.36
Stop loss: R605.00
Take profit price: R675.20
Max % risk per trade: 2% (R1,200)
Brokerage rate in: 0.30%
Brokerage rate out: 0.30%
To calculate the brokerage costs, we will need two main calculations. The first is to calculate the ENTRY brokerage (when you enter a trade).
The second is to calculate the EXIT brokerage (when you close a trade). Let’s start with the first calculation….
Calculation #1: ENTRY brokerage
Step #1: Find out the rands risked in trade
Rands risked in trade = (Entry – Stop loss)
= (R641.36 – R605.00)
= R36.36
Step #2: Calculate the number of CFD contracts to trade
No. CFDs = (Max % risk ÷ Rands risked)
= (R1,200 ÷ R36.36)
= 33
Step #3: Calculate your ENTRY exposure for the CFD trade
Entry exposure = (Entry price X No. CFDs)
= (R641.36 X 33 CFDs)
= R21,164.88
NOTE: When you buy 33 Anglo American CFDs, you’ll be exposed to R21,164.88 worth the value of AGL shares.
Step #4: Calculate the brokerage you’ll pay to ENTER your trade
Brokerage in = (Entry exposure X Broker rate in)
= (R21,164 X 0.30%)
= R634.94
This means, you’ll need to pay a brokerage of R634.94 in order to buy (go long) 33 AGL CFDs. Now we can move onto the next brokerage leg.
Calculation #2: EXIT brokerage
Step #1: Know your EXIT exposure for the CFD trade
Exit exposure = (Exit price X No. CFDs)
= (R675.20 X 33 CFDs)
= R22,281.60
NOTE: When you sell your 33 Anglo American CFDs, you would have exited with an exposure of R22,281.60 worth of AGL shares.
Step #2: Calculate your brokerage you’ll pay to EXIT your trade
Brokerage out = (Exit exposure X Broker rate out)
= (R22,281.60 X 0.30%)
= R668.44
Step #3: Calculate the total brokerage for the CFD trade
Total brokerage = (ENTRY brokerage + EXIT Brokerage)
= (R634.94 + R668.44)
= R1,308.38
This means, if the trade hit your exit level you would have ended up paying a total brokerage of R1,308.38 for your Anglo American CFD long trade.
Print this out so you know how to calculate the brokerage with your future trades. Here is a quick cheat sheet to calculate your Brokerage with each CFD trade.
[YOUR FREE] CFD Brokerage Cheatsheet
Calculation #1: ENTRY brokerage
Step #1: Find out the rands risked in trade
Rands risked in trade = (Entry – Stop loss)
Step #2: Calculate the number of CFD contracts to trade
No. CFDs = (Max % risk ÷ Rands risked)
Step #3: Calculate your ENTRY exposure for the CFD trade
Entry exposure = (Entry price X No. CFDs)
Step #4: Calculate the brokerage you’ll pay to ENTER your trade
Brokerage in = (Entry exposure X Broker rate in)
Calculation #2: EXIT brokerage
Step #1: Know your EXIT exposure for the CFD trade
Exit exposure = (Exit price X No. CFDs)
Step #2: Calculate your brokerage you’ll pay to EXIT your trade
Brokerage out = (Exit exposure X Broker rate out)
Step #3: Calculate the total brokerage for the CFD trade
Total brokerage = (ENTRY brokerage + EXIT Brokerage)
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