#### 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

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.

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

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.

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.

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)

Entry exposure = (Entry price X No. CFDs)

Brokerage in = (Entry exposure X Broker rate in)

Calculation #2: EXIT brokerage

Exit exposure = (Exit price X No. CFDs)

Brokerage out = (Exit exposure X Broker rate out)

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

Total brokerage = (ENTRY brokerage + EXIT Brokerage)

Not a subscriber to Money Morning?
You can get free daily recommendations like these with Money Morning eletter. Just sign up here. 