Hidden Trading Costs to Know

With trading fees explained properly, "commission-free" rarely means free. Every platform earns money somewhere, and the ways it does so are easy to overlook: a wider spread, a margin on currency conversion, a monthly account charge or interest on borrowed exposure. Below, each cost is described with an illustrative example so you can price your own activity.

Dealing costs: commission and spread

Commission is a fixed or percentage fee charged each time you buy or sell. It is the easiest cost to spot.

The spread is the gap between the price at which you can buy (the ask) and the price at which you can sell (the bid). You pay it, in effect, every time you open and close a position. On a heavily traded share it may be tiny; on a small company or outside main trading hours it can be wide.

Illustrative forex example. EUR/USD is quoted 1.0848 bid and 1.0850 ask, a spread of 2 pips. On one standard lot, where each pip is worth $10, crossing that spread costs $20 before the price has moved at all. The pip calculator converts spreads into money for any pair.

Currency conversion: the charge many investors never notice

If your account is in pounds, euros or another currency and you buy US shares, the platform converts your money into dollars, and back again when you sell or receive dividends. Many platforms add a percentage on top of the market exchange rate.

Illustrative example. You buy $5,000 of US shares with a 0.5% conversion charge: that is $25 on the way in. Sell later for $5,000 and convert back, and another $25 goes. Two conversions cost $50, or 1% of the investment, before any commission. On dividends paid in dollars, the same charge is taken every time.

Annual charges on long-term holdings

• Platform or custody fee: a yearly percentage of what you hold, or a flat monthly fee.
• Fund expense ratio: the ongoing charge built into every fund and ETF, deducted from the fund's value rather than billed to you.
• Inactivity fees: charged by some firms if you do not trade for a set period.

These look small but compound. As an illustration: $10,000 growing at 6% a year before costs for 20 years ends at about $31,770 with a 0.05% annual charge but about $26,533 with a 1% charge. The difference, around $5,237, is the price of the higher fee. The numbers are hypothetical; the principle holds at any return.

Financing costs on leveraged positions

If you hold a leveraged position, such as a CFD or a forex trade, past the daily cut-off, you usually pay (or occasionally receive) overnight financing. For forex this is called a swap or rollover and reflects the interest-rate gap between the two currencies plus the broker's mark-up. Triple swaps are commonly charged on Wednesday nights to cover the weekend. For share CFDs, financing is typically a benchmark interest rate plus a margin, charged on the full position value rather than on your deposit.

Because it is charged on the full exposure, financing can make a leveraged position held for months far more expensive than buying the underlying asset outright. The margin calculator shows how large that exposure is.

Crypto platform fees

Crypto platforms usually charge a percentage fee on each trade, sometimes lower for orders that add liquidity (makers) than for those that take it (takers). Withdrawals to an external wallet carry a network fee plus, sometimes, a platform charge. Some "instant buy" buttons hide a wider spread than the platform's own order book. Paying by card or converting from your local currency can add a further percentage on top. Before buying, compare the amount of coin you will actually receive with the amount a plain calculation at the quoted market price would give you; the difference is your true entry cost. The crypto profit calculator applies a fee on both the buy and the sell so you can see the effect.

Smaller costs worth checking

• Stamp duty and transaction taxes: some countries tax share purchases, for example stamp duty on many UK share purchases.
• Regulatory fees: small charges passed through on certain sales.
• Transfer-out and closure fees.
• Paper statements, phone dealing and data subscriptions.

Putting it together: one illustrative year

Consider a hypothetical investor whose account is in pounds and who puts the equivalent of $400 a month into a US-listed ETF: $4,800 over the year. The platform charges no commission, but adds 0.5% on currency conversion, charges a platform fee of 0.25% a year, and the ETF has an expense ratio of 0.10%. For simplicity, apply the annual charges to the year-end value of $4,800.

In this example the "free" platform's largest charge is currency conversion, not anything labelled as a trading fee. Change any assumption and the total changes, which is why pricing your own pattern matters.

How to compare platforms fairly

1. Write down a realistic year: number of trades, average size, markets, currencies and how much you will hold.
2. Price that year at each platform, including spread and currency conversion, not just commission.
3. Add annual charges and, for funds, each fund's expense ratio.
4. Check exit costs. A low running cost with a high exit fee can trap you.

Cost is only one of the ten checks in our guide on how to choose a broker. Authorisation and custody come first.