Trading platforms like Plus500 and eToro promise seamless access to financial markets, offering tools and instruments designed for everyone from beginners to experienced traders. However, behind the slick marketing and user-friendly interfaces lies a less-publicized truth: the cost of trading on these CFD trading platforms can be exorbitant due to their high fees. Let’s delve into the details of these charges and how they can erode your profits.
First of all let’s explain in simple terms what overnight financing fees are: Imagine you borrow a bike from your friend to ride around for the day. At the end of the day, your friend says, “Hey, if you want to keep the bike overnight, you have to pay me a small fee.” That’s kinda what financing fees are in trading. When you trade with platforms like eToro or Plus500, you’re often using borrowed money (this is referred to as “leverage”) to make your trades bigger. If you hold onto that borrowed money overnight, the platform charges you a fee for it, like renting the bike overnight.
Now here’s the catch: those fees vary between CFD providers and can be super high (!!). Some platforms, like Plus500 or eToro, charge so much that if you keep your trade open for a year, you might pay 10% or more just in fees! That means a big chunk of your potential profit – or even your money – just disappears into their pockets.
So, when trading, always check those overnight fees. Some platforms, like Trade Nation, charge way less, so you get to keep more of your hard-earned cash. 👍
Plus500: The Fine Print Behind the Headlines
Plus500 markets itself as a cost-efficient trading platform, but its fee structure tells a different story. Here are the main charges to watch out for:
1. Overnight Financing Fees
Plus500 charges an overnight funding fee for positions held beyond the end of the trading day. This fee varies depending on the instrument but can significantly impact your bottom line. The formula used is:
Trade Size × Position Opening Rate × Daily Overnight Funding Percentage
For example, holding a leveraged position overnight could cost you more than you anticipate, especially in volatile markets.
Plus500: Overnight financing fees range from 9.6% to 21.5% on certain instruments and they make it hard for you to figure the rates they are charging. No wonder they’re making record profits! 💰
2. Currency Conversion Fees
If you trade instruments denominated in a currency different from your account’s base currency, Plus500 slaps on a currency conversion fee of up to 0.7%. While this might seem small, it adds up quickly for frequent traders.
3. Inactivity Fees
Inactive accounts are charged a monthly fee of $10 after three months of no activity. This charge may seem trivial, but over time, it can deplete your account balance if you’re not actively trading.
eToro: The King of Sneaky Charges
eToro prides itself on being the world’s leading social trading platform, but it’s equally infamous for its extensive list of fees. Let’s break these down:
1. Spread Costs
While eToro advertises “no commissions,” it makes up for this with wide spreads, particularly on forex and cryptocurrency pairs. For example, spreads on popular crypto pairs can range from 0.75% to over 2%, which eats into your potential profits right away.
2. Withdrawal Fees
Every withdrawal from eToro costs $5, regardless of the amount. While this might not seem excessive for large withdrawals, it disproportionately affects small traders who might need to withdraw smaller sums more frequently.
3. Overnight and Weekend Fees
Like Plus500, eToro charges overnight fees on leveraged positions. However, these can be even higher for certain assets. If you’re trading with leverage, expect these fees to rack up quickly.
eToro: Charges 6.4% +/- SONIA for holding positions overnight. With SONIA at 4.7%, that’s a staggering 11% per year just to keep your trade open! 😡
4. Inactivity Fees
After 12 months of inactivity, eToro charges a $10 monthly fee. While longer than Plus500’s grace period, it’s still an unnecessary cost that punishes passive account holders.
The True Cost of Trading
For both platforms, the real issue lies in transparency. While these fees are disclosed in the fine print, they’re not emphasized in marketing materials. This lack of upfront clarity can lead traders – particularly beginners – to underestimate the costs involved. Here’s a summary of how these fees compare:
| Fee Type | Plus500 | eToro |
|---|---|---|
| Overnight Fees | High, varies by instrument | High, especially with leverage |
| Currency Conversion | 0.7% | Built into spreads |
| Spread Costs | Moderate | High |
| Withdrawal Fees | None | $5 per withdrawal |
| Inactivity Fees | $10/month after 3 months | $10/month after 12 months |
How to Protect Yourself
- Read the Fine Print: Before committing to any trading platform, thoroughly review its fee structure. Understand what you’ll be charged for trades, overnight positions, and account inactivity.
- Minimize Overnight Positions: If you can, avoid holding positions overnight to dodge financing fees. Or better switch to a CFD provider with lower financing charges!
- Watch Your Currency Settings: Whenever possible, align your account’s base currency with the instruments you’re trading to reduce conversion fees.
- Compare Platforms: Don’t assume that the most popular platform is the most cost-effective. Look at competitors with lower fees.
Conclusion
Both Plus500 and eToro offer accessible entry points into trading, but their fee structures can quickly chip away at your profits. While no trading platform is completely free of charges, understanding and planning for these costs can make a significant difference in your bottom line. Always remember: the less you pay in fees, the more you keep for yourself.
