Futures Trading: Fees & Commissions

Trading Costs and Commissions in Futures Trading #

When it comes to futures trading, traders incur various fees and commissions. These include:

Broker Commissions #

Traders pay commissions to brokers on a per contract basis. The specific commission structure may vary between brokers.

Exchange Fees #

Each futures contract is subject to exchange fees, which can vary across different commodities. The exchange charges a fee per contract traded.

Clearing Fees #

Clearing fees are associated with the clearing process that ensures the smooth settlement of trades. These fees may vary depending on the clearing firm and the specific futures contract.

Routing Fees #

Traders may encounter routing fees, which cover the cost of technology and execution services provided by the broker.

NFA Fees #

The National Futures Association (NFA) charges fees to regulate and oversee the futures industry.

It’s worth noting that today’s commissions are relatively low compared to the leverage available to traders. For instance, when trading crude oil, you trade in 1,000-barrel increments, and for gold, it’s 100 ounces. These quantities apply to many other commodities as well. Consequently, larger traders often overlook the commission costs as they are often immaterial. However, it’s important to discuss the specific commissions with your broker, especially if you engage in frequent trading such as day trading, as it can impact your overall profitability.

For example, let’s consider John, a swing trader who spots a trading opportunity in ES (S&P 500 futures). He places a market order to buy one contract, incurring the following costs:

  • Commissions: $1.25
  • Exchange Fees: $1.18
  • NFA Fees: $0.02

After the ES trade rises by five points, resulting in an unrealized gain of $250, John decides to close the trade. The costs to close the trade are as follows:

  • Commissions: $1.25
  • Exchange Fees: $1.18
  • NFA Fees: $0.02

Therefore, John’s net cost for the trade amounts to $4.90 ($2.45 for buying and $2.45 for selling).

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