As traders, we should treat trading as our own business venture. When we are managing businesses, there are many aspects that we should consider such as Management, Cashflow, and most importantly, trade costs.
A very common misconception is that the only trading costs that we incur as traders are the commissions that we pay when we are putting on a trade. Not only that, but some may even assume that they pay no commission when trading on a “commission-free” account as advertised by many brokers out there.
In this short series, we are going to carry out a trade cost analysis and break down the real costs of trading. I will also share the secrets to saving a huge amount of money by choosing the right broker that offers the best trading conditions for you.
Let’s start off with the most direct cost, trading commissions.
Trading commissions are deducted from your trading account whenever you open and close a position.
Live sample: Let’s take the VIP account from Alchemy Markets as an example:
Alchemy Markets charges $2 per lot per side on the VIP account.
If I am trading gold on a VIP account with Alchemy Markets, the commissions are calculated as follows:
1 standard lot traded on gold = $2 per lot per side
= $4 round turn/ Lot
It is pretty straightforward, isn’t it?
Per Lot vs Notional Volume
While we are here, did you know that some brokers charge trading commissions based on notional value instead of per lot?
Let’s do a quick calculation on the same scenario, i.e: buying 1 lot of gold but with a broker that charges based on the notional volume traded instead:
A screenshot of another Broker’s who charges commissions based on notional value
– $3 per USD100,000 traded
– standard contract size for gold= 100 ounces/ lot
1 standard lot traded on gold = 1950 (current price) x 100 ounces (contract size)
= 195,000USD in notional value
Commissions = 195,000 USD / 100000 USD x $3
Remember, that is only for PER SIDE! It means that you pay $5.85 just for opening the trade!
What about closing the trade?
Let’s assume I close the gold long position at $1970
1 standard lot traded on gold = 1970 (current price) x 100 ounces (contract size)
= 197,000USD in notional value
Commissions = 197,000 USD /100000 USD x $3
Therefore, the total commission that I will be paying is $11.76!
Since we only pay $4 for the same trade on Alchemy Markets, we are saving $7.76 per lot, or 194% in trading costs!
Imagine trading 30 lots per month, you can save approximately $232.80 in commissions alone if you are trading with Alchemy Markets.
Not only that, but the commissions in notional value are going to be more costly when the price of gold climbs, as the notional value traded increases.
Now that you are aware of how trading commissions work in trading, let’s move on to Part 2: The Spreads
Trade now at Alchemy Markets with low commissions and competitive spreads.