Basic Knowledge to Invest
Lesson 6 Spread & Fees
Trading financial assets will have a fee that investors must pay to the broker who facilitates the trade. The fee rates can vary. There are many types of service fees depending on each broker's policies.
However, IUX has only two types of fees, which are:
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Spread
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Overnight fee
1. Spread
What is Spread?
A spread is the gap or difference between the ask and bid prices.
The ask Price is the price at which the seller offers to sell the asset to the broker.
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The seller will receive the ask price when opening a buy position and closing a sell position.
The bid Price is the price the buyer is willing to pay the broker for the asset.
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The buyer will receive the bid price when opening a sell position and closing a buy position.
The spread will be charged immediately when you open a position, initially causing your position to show a negative value (-). This will be reflected in the P/L (Profit/Loss) on your portfolio page.
How to calculate the spread?
Spread Amount = (Bid Price - Ask Price) × Units / Exchange Rate
For example, When AMD stock has a bid price of $144.50 and an ask price of $145.00, the spread is $0.50. If you invest $1,000 and receive 7 units, the fee you will be charged is calculated as follows.
Formula:
Spread Amount = (144.50 - 145.00) × 7 / 1
Spread Amount = (-0.50) × 7 / 1
Spread Amount = -3.50
This means when you open a position, you will be charged a fee of $3.50.
2. Fee
An overnight fee is a fee that investors must pay to the broker if they hold an asset overnight.
This overnight fee applies to CFD assets traded with leverage greater than 1 or to assets held in a sell position. The rate of the overnight fee varies for each asset.
Overnight Fees have two types as follow:
- Daily Overnight Fee.
The fee you must pay to the broker daily is charged daily at 10:00 PM (GMT+00:00). - Weekly Overnight Fee.
The fee you must pay to the broker at three times the daily amount due to market closures.
It applies as follows:
2.1 The fee is charged three times every Friday for assets such as commodities, indices, stocks, cryptocurrencies, and ETFs, as these assets have a market close every Saturday and Sunday.
2.2 The fee is charged three times every Wednesday for Currency assets because the market closes on Thursday and Friday; thus, financial transactions cannot be made on this day.