Trading Costs

What trading costs are

Trading costs are everything you lose simply by participating in the market, separate from whether you call the direction right. They include visible charges like commission and tax, and quiet ones like the bid-ask spread and overnight fees.

Why it matters

Costs eat directly into profit and never disappear. A strategy that looks break-even in theory can lose after costs. Frequent, short-term traders are especially sensitive, since every entry and exit incurs a fee.

The main types

• Commission: a fee paid to the broker per trade, usually a percentage of value or a fixed amount.
• Spread: the gap between the buy and sell price; you always buy slightly higher and sell slightly lower, and that gap is a cost.
• Overnight / swap fee: a fee for holding a leveraged derivative position overnight, incurred daily and compounding if held long.
• Deposit and withdrawal fees: the cost of moving money in and out of the account, depending on broker and method.
• Data fees: some platforms charge for real-time price data or advanced tools.
• Tax: tax obligations on transactions or profits, depending on each market's rules. In Vietnam, stock trading carries taxes and fees per current regulations.

How overnight fees (swap) are calculated

In forex, swap comes from the nature of a currency pair: buying a pair means holding the base currency and borrowing the quote currency — you earn the interest rate of what you hold and pay the rate of what you borrow. The difference between those two rates, minus the broker's markup, becomes the swap charged for each night the position is held, applied at the session's day-rollover point (typically 5:00 PM New York). Swap can therefore be negative or positive: holding the side that earns the higher rate differential can get you paid — the basis of the carry trade — while the opposite side pays.

In practice, brokers publish long and short swap rates per pair, in points per lot per night; a position's swap is roughly its size times that rate times the point value. These numbers move with central bank rates, so the right approach is checking the broker's specification table, not memorizing figures. Two things catch people out: one mid-week night (usually Wednesday for forex) is charged triple to cover the weekend, when markets close but interest still accrues; and index or share CFDs charge financing differently — a reference interest rate plus markup, applied to the full position value. Some brokers offer swap-free accounts that replace swap with a fixed fee.

How to apply it

Factor costs into every trade from the start, especially if you trade frequently. Compare brokers not only on commission but also on spread and overnight fees, since these can exceed commission. For positions held long, estimate the cumulative overnight fee to know the true cost of holding.

A concrete example

A scalper enters and exits dozens of trades a day, each losing a small amount to spread and commission. Individually negligible, but summed over a month it can become a meaningful share of the account — enough to turn a gross-profitable strategy into a net loss after costs. Costs don't kill you in one trade; they grind you down over many.

Common mistakes

• Looking only at commission while ignoring spread and overnight fees.
• Trading so often that cumulative costs swallow the profit.
• Holding a leveraged position for a very long time while forgetting the overnight fee grinding away.
• Forgetting tax and fees when judging a strategy's true performance.

FAQ

• What's usually the biggest cost? It depends on style. Scalpers suffer most from spread and commission; long-term holders suffer most from overnight fees.
• Why do I lose despite winning many small trades? Possibly because the cost per trade is large relative to the profit per trade, so total costs exceed total profit.
• Why is one mid-week night charged triple swap? Because currencies settle two business days later, that night (usually Wednesday in forex) carries the interest for the weekend, when markets are closed but rates still accrue.
• Can swap really be positive? Yes — when your side of the trade earns a rate differential large enough to exceed the broker's markup. But rates move with policy cycles, so positive swap today is no promise for tomorrow.
• How do I cut costs? Trade more selectively, choose a broker with low total cost for your style, and avoid unnecessary overnight leverage.

Checklist

• ☐ Have I factored commission, spread, and overnight fees into this trade?
• ☐ At my trading frequency, what are cumulative monthly costs?
• ☐ If holding long, is the cumulative overnight fee significant?
• ☐ Is my strategy still profitable after all costs and taxes?