Explainer · Costs & Regulation
Trading fees explained: spread, commission and swap
Every trade starts slightly in the red. The spread, any commission and, if you hold overnight, a financing charge all come out before the market has to move in your favour at all.
Quick answer
Trading fees are the costs of opening, holding and closing a position: the spread between the bid and ask price, commissions, and overnight financing on leveraged products such as CFDs [2]. Add them up in money before you trade, because your position must first earn back that amount.
Key points
- The spread is the difference between the bid and the ask price, and you cross it every time you open and close [4].
- FINRA says free trading does not mean free investing: zero-commission brokers still earn in other ways [5].
- Overnight financing on CFDs is charged per position and the effective rates vary widely between firms, according to the UK FCA [7].
- In our worked example, one trade held for ten nights cost $26.09, and financing was the largest part (calculated).
- Frequency multiplies everything: $8 per round trip at 20 trades a month is $1,920 a year (calculated).
On this page
What fees do you pay when you trade?#
Regulators sort costs into two groups. The SEC's investor bulletin separates transaction fees, paid each time you buy or sell, from ongoing fees, paid year after year whatever you do [1]. For a beginner who trades, three costs matter most: the spread, the commission and, on leveraged products held overnight, a financing charge.
Australia's regulator lists exactly these three for contracts for difference (CFDs): commissions, spreads and overnight financing fees, and it warns that they can be high [2]. An older ESMA warning adds account management fees and taxes to the list [3]. The table below shows what each one is and when it hits your account.
| Cost | What it is | When you pay it |
|---|---|---|
| Spread | The gap between the bid (highest price a buyer pays) and the ask (lowest price a seller accepts) | Built into the price when you open and when you close |
| Commission | A charge for executing your trade, per trade or per side | When you open, and often again when you close |
| Overnight financing (swap) | An interest-like charge for keeping a leveraged position open overnight | Every night the position stays open |
| Other fees | Account management fees, taxes and similar charges | Depends on the provider and your country |
Definitions from the SEC glossary and FINRA [4] [5]; cost list from ESMA and ASIC [3] [2].
How does the spread cost you money?#
The SEC defines the bid as the highest price a buyer will pay and the ask as the lowest price a seller will accept. The difference is the spread [4]. When you buy, you usually pay the ask. When you sell, you usually receive the bid. So if you bought and sold straight away at an unchanged quote, you would lose the spread.
That is why a trade shows a small loss the moment it opens. The spread is not listed on your statement as a fee, but it is a real cost. Our page on the bid ask spread explains why spreads widen in quiet or fast markets.
Does zero commission mean free trading?#
No. FINRA notes that some online or discount brokers offer free trades, and then states plainly that free trading does not mean free investing [5]. It lists other ways those firms still earn: interest on margin loans, robo-advisory fees and commissions on options and other securities [5].
An SEC staff report from October 2021 found the same pattern in US stock trading. After cutting commissions, some retail brokers kept or increased other revenue, including payment for order flow, margin interest and securities lending [6]. Our explainer on payment for order flow shows how that payment can create a conflict of interest for the broker.
The practical point: a commission of zero tells you one cost is missing. It does not tell you the total.
What is a swap or overnight financing fee?#
When you keep a leveraged position such as a CFD open overnight, the provider usually charges financing for each night. Brokers call it a swap, rollover or overnight funding charge. ASIC lists overnight financing fees among the main costs of CFDs [2], and an older ESMA warning names daily and overnight financing costs [3].
Providers set their own terms. In a 2025 review, the UK Financial Conduct Authority found wide variations in the effective interest rates retail clients paid through overnight funding charges at different firms [7]. It also found that some firms charged clients for overnight short positions where other providers would have paid the client a credit on the same position [7].
How do you work out the full cost of one trade?#
The SEC's day-trading guide says traders should know in advance how much they must make just to cover expenses and break even [9]. You can do that in four steps. The example uses an assumed financing rate of 6% a year, chosen only to make the arithmetic visible. It is not a quote from any provider, and real rates differ a lot [7].
- Price the spread
Units × spread. 10,000 units × 0.0002 = $2.00 (calculated).
- Add commission for both sides
If the provider charges $3 per side, opening and closing cost $6.00 (calculated).
- Add financing for each night
Our calculator applies the yearly rate to the full position value: 10,000 × 1.1002 = $11,002, and $11,002 × 6% ÷ 365 × 10 = $18.09 (calculated). Check how your own provider calculates it.
- Turn the total into a break-even move
Total cost ÷ units. $26.09 ÷ 10,000 = about 0.0026, so the bid must rise from 1.1000 to about 1.1026 before the trade is even (calculated).
- Spread cost
- $2.0010,000 x 0.0002, calculated
- Commission
- $6.00$3 per side, two sides, calculated
- Financing
- $18.09assumed 6% a year, 10 nights, calculated
- Total cost
- $26.090.237% of position value, calculated
Notice which cost is largest. After ten nights, financing is more than the spread and commission together (calculated). ASIC warns that leverage and the financing fees that come with it can magnify losses [8]. Our page on leverage and margin explained shows why the full position, not the margin, is the number that matters. You can run your own inputs in the trading cost calculator, which uses the same formula.
How fast do small costs add up?#
A few dollars per trade sounds harmless. Multiply it by how often you trade and compare it with your account. The chart assumes a $5,000 account and $8 per round trip (the $2 spread plus $6 commission from the example, no overnight holding).
At 60 trades a month, the yearly costs are larger than the whole account (calculated). The trades would need to earn more than 100% a year just to stand still.
Ongoing percentage fees compound in the same way over longer periods. The SEC shows a $100,000 investment growing 4% a year for 20 years ending at approximately $208,000 with a 0.25% annual fee, $198,000 with 0.50% and $179,000 with 1.00% [1]. On those approximate figures, the gap between the lowest and highest fee is about $29,000 (our arithmetic).
The same pattern shows up in official loss data. ASIC, Australia's regulator, reported that in the 2024 financial year 68% of retail CFD investors lost money, a total of more than $458 million, of which $73 million was fees [8]. That puts fees at about 16% of the total (calculated).
Mistakes beginners make with trading fees#
- Looking only at the commission
A zero-commission account can still have a wide spread and high financing. FINRA's point is that free trading does not mean free investing [5].
- Forgetting the overnight charge
Holding a leveraged position for days or weeks can make financing the biggest cost, as in our ten-night example (calculated).
- Hedging instead of closing
Opening an opposite position to freeze a loss keeps both legs paying financing, with no way to profit from the pair [8].
- Comparing providers on spreads alone
The FCA found many firms judged their own value mainly on spread costs, while other costs can be a significant part of the price [7]. Ask for every charge in writing.
- Trading more to win back costs
Each extra trade adds another round of spread and commission. More trades raise the break-even bar instead of lowering it.
Frequently asked questions#
Is the spread a fee?
It is a cost, even though it rarely appears as a line on your statement. The SEC defines it as the difference between the bid and the ask [4]. You pay it through the price when you open and close a position.
Do I pay overnight financing on shares I own outright?
Overnight financing applies to leveraged positions such as CFDs, which ASIC lists with commissions and spreads as their main costs [2]. Shares bought outright with your own cash are a different product; check your broker's fee schedule for any account or custody fees.
Can overnight financing ever be paid to me?
Sometimes. The FCA found that on the same short position some providers applied a credit while others charged the client [7]. It depends on the provider, the market and the direction of your trade, so read the provider's financing terms.
How do I compare the cost of two brokers?
Price the same trade at both: the same units, the same holding period, every fee. Ask each firm how it is paid, as FINRA suggests [5], and compare the total in money, not the headline commission.
The bottom line#
Before any trade, write down the spread, the commission for both sides and the financing for the nights you expect to hold, then turn the total into the move you need just to break even. If that move looks large next to what you expect from the trade, the costs have already decided the outcome. Costs are not the only risk: leveraged products can lose money quickly, so read our risk disclosure and our explainer on what is a cfd before opening an account.
Sources
- How Fees and Expenses Affect Your Investment Portfolio - Investor Bulletin.
- Contracts for difference (CFDs) - Moneysmart.gov.au.
- Contracts for difference (CFDs).
- Bid Price/Ask Price | Investor.gov.
- Fees and Commissions | FINRA.org.
- Staff Report on Equity and Options Market Structure Conditions in Early 2021.
- Multi-firm review of contracts for difference providers' provision of price and value.
- 26-004MR ASIC secures nearly $40 million in refunds to investors and drives change after CFD sector falls short.
- Day Trading: Your Dollars at Risk.
Education only. This page is not investment, tax or legal advice. Trading and crypto can lose you money. See our risk disclosure.
