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Transparent Brokers – A stealth tax?

Understanding why brokers charge an overnight financing charge and how this is calculated was not known by 95% traders in a survey. This percentage is extremely high, but to be totally honest not surprising. Every SB website you look at has lots of dropdown menus and tabs proclaiming how good they are and showing you the 000’s markets you can trade. However, one area they dedicate zero time to is the funding charge. No examples of how its calculated or what the expected cost might be. Instead you are charged the cost and only if you look in your account history do you see it as a line item.

You have to question why brokers choose not to warn traders of the cost and instead let them find out the hard way. Some brokers even go that extra mile to hide the financing charge by wrapping it in the opening and closing of positions each night. Just in the same way banks publish their O/D fees and unauthorised borrowing rates, brokers should publish their overnight charges on a daily basis. The fact that brokers choose to ignore something that would technically be so simple to do, but more importantly ‘treating clients fairly’ raises eyebrows that they don’t want to publicly broadcast the fact. Hardly surprising when the fee probably contributes almost 10% of their annual revenues!

Here is an example of two traders trading the same FX pair at two different brokers at exactly the same time. Both traded 20 times throughout the day, executing the trades at exactly the same time. This highlights just how important it is for traders to use a broker that really benefits them. They all might market themselves as market leaders and the best graph providers, but really as a trader the price is all that matters.

As you can see, Trader A made a profit of £210 during the day and Trader B made a loss £35. The resulting difference of £245 is further magnified over a week and even a month. This would mean a whopping £1225 per week and almost £5k a month. Its hard enough making money trading the markets without having to worry about saving £5k a month in spread differential. We are all happy to price compare when buying our next TV and saving £50, but we should all be comparing spreads when trading because the difference per month is amazing.

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