<Last updated 16.04.2020>
Hi! If you are interested in online trading you should read the below that provides important information about the transaction costs involved.
Transaction costs are charges for transactions taking place from your side as a client. These are Commissions, Spread and Swaps. First, lets talk about the calculation of Profit and Loss when using pips.
A pip is the second smallest increment in any currency pair. Pip value is calculated by taking the amount of currency (or lots) multiplied by the price change of the currency pair converted into the trader’s account currency.
Example: 1 lot USDCHF
100,000 (1 lot) x 0.00010 (1 pip) = 10 CHF pip value
Conversion to USD with example USDCHF rate (0.794) = 12.58 USD > If this is the difference (0.00010) between the opening and closing price when trading 100,000 units then it is the PnL generated from that position.
Brokers charge commission for transactions taking place.
A position involves two transactions taking place. IN and Out.
IN: the amount bought/sold when taking a position in the market.
OUT: the amount sold/bought when closing the position in the market.
Volume Traded and Commission
The amount traded including both IN and OUT.
Example Commission charge: For FOREX = 9 USD per round lot (both IN and OUT)
> This means, charge is 4.5 USD for 100,000 IN and 4.5 USD for 100,000 OUT
This means charge is 9 USD per 1 lot position (200,000 units traded)
Volume Traded and Spread
Spread is the Price Difference between the ASK and BID price. ASK is the price used for buying and BID is the price used for selling. Spread charge includes both IN and OUT.
Example Spread charge:
EURUSD ASK price: 1.12020
EURUSD BID price: 1.12010
Spread= ASK-BID = 0.00010
Buying at the ASK price 1.12020 and selling at the BID price 1.12010 (which is lower), 100,000 units of currency will result in 0.00010 x 100,000 = 10 USD charge.
> This means that as soon as the position opens this will be the charge >unrealized Profit/Loss generated by the current market BID price.
The spread is not always fixed or always floating. The type of spreads that you’ll see on a trading platform depends on the broker and how they make money.
There are two types of spreads:
2) Variable (also known as
Rollover is the interest paid for holding a position overnight. The Rollover allows a trader to hold a position. Forex/CFD cash products have no expiration. Normally contracts should normally rollover to the next day by closing the position and re-open (manual rollover). In the CFDs case there is no delivery of the actual asset.
Since forex is traded in pairs, every trade involves not only two different currencies, but also two different interest rates. Rollover is also called Swap. The interest rate differential between the two currencies involved in the pair you are trading.
Example of Rollover Calculation:
> Position Long EURUSD > 100,000 units bought. Closes at Price 1.17500. Re-Opens at Price 1.17510. Price difference = 0.00010 since the position re-opened higher by 1 pip. So rollover charge is 10 USD = 0.00010 x 100,000.
Rollover/Swap charge in MT4 usually is depicted in MT4 points.
Example > Long swap = 10 which means 10 points = price difference 0.00010 for EURUSD.
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