A:

The basic fees involved in trading futures contracts are brokerage fees, clearing fees and settlement fees.

Futures trading is an alternative investment that offers very high leverage for traders. Trading futures contracts does not require investing the full value of the contract. Traders only put up a small amount of margin to hold a position in the market, typically no more than 10% of the actual value of the contract. In addition to having the necessary trading capital, traders also have to pay certain fees on each trade they make.

The primary costs involved in futures trading are brokerage fees. Brokerage fees vary substantially between full service brokers and discount brokers. In addition, different brokers calculate the fees they charge in different ways. Some brokers charge a flat fee per buy/sell transaction. Other brokers charge a fee per transaction side; that is, a fee is charged when a trading position is opened, and another fee is charged when the position is closed. Other brokers determine fees on a percentage basis, charging a percentage of the total value of the order. Finally, some brokers' charges are set up with both a flat fee charged and then an additional percentage fee based on the size of the order.

Some futures traders, rather than trading directly themselves, prefer to use a managed account that is traded by a futures trading adviser or money management professional. A managed account incurs management fees in addition to trading fees. These fees may be charged either as a flat fee, a percentage of total capital invested or a percentage of profits.

The various exchanges on which futures contracts are traded charge clearing and settlement fees. However, these fees are usually insignificant, commonly totaling no more than a dollar or two per contract traded.

RELATED FAQS
  1. Where do I look for fees that I am charged on investments? What are those fees called?

    The fees and expenses charged for investments vary. The fees usually depend on the type of investment and the investment ... Read Answer >>
  2. What are typical trust fund management fees?

    Learn about trust fund management fees, such as the annual management fee, annual expense ratio, brokerage commissions and ... Read Answer >>
Related Articles
  1. Financial Advisor

    Understanding Brokerage Fees

    Agents charge brokerage fees for facilitating transactions between buyers and sellers.
  2. Investing

    8 Investing Fees That You Should Never Pay

    In investment management and financial planning there are a plethora of fees that are unnecessary.
  3. Investing

    Are Fees Depleting Your Retirement Savings?  

    Each retirement account will have a fee associated with it. The key is to lower these fees as much as possible to maximize your return.
  4. Investing

    A Guide To Investor Fees

    Fees are one of the most important determinants of investment performance and something that every investor should know.
  5. Tech

    Are Financial Advisor Fees Too High?

    Fees charged by financial advisors run the gamut. Are you getting a fair deal or paying too much?
  6. Personal Finance

    Do You Know How Your Financial Advisor Is Paid?

    It is important to understand how your financial planner is compensated.
  7. Retirement

    How a 1% Annual Fee Can Ruin Your Nest Egg

    What kind of impact does an annual 1% fee have on your portfolio? The answer may surprise you.
  8. Managing Wealth

    How To Optimize Your Portfolio and Reduce Fees

    Investment fees aren't avoidable altogether, but there are strategies investors can employ to keep those fees at bay and reduce the impact on returns.
  9. Investing

    3 Investment Fees That Are Negotiable

    Investment fees are a necessary evil but that doesn't mean they have to be overly costly. There are ways to negotiate some of the expenses down.
  10. Retirement

    401(k) Fees You Need To Know

    Many workers are largely unaware of the various fees that their plans charge them, or what the fees are for.
RELATED TERMS
  1. Brokerage Fee

    A fee charged by an agent, or agent's company to facilitate transactions ...
  2. Fee

    A fee is a fixed price charged for a specific service and is ...
  3. Clearing Fee

    A fee charged by a clearing house for its services. A clearing ...
  4. Exchange Fees

    A type of investment fee that some mutual funds charge to shareholders ...
  5. Flat Dollar

    A fixed dollar amount, generally in the context of fees or commissions ...
  6. Service Charge

    A type of fee charged to cover services related to the primary ...
Hot Definitions
  1. Dividend Yield

    A financial ratio that shows how much a company pays out in dividends each year relative to its share price.
  2. Fixed-Income Security

    An investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. ...
  3. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents ...
  4. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to ...
  5. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  6. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
Trading Center