In order to participate in the futures market, an individual assumes responsibility for several transaction costs associated with the facilitation of a trade. Overall, there are four basic types of fees incurred during the active trading of a single futures contract:
- Exchange/Clearing fees
- National Futures Association (NFA) fee
- Data fees
- Brokerage commissions
Futures trading fees are assessed on a per-contract basis. For every contract traded, each type of fee is passed on to the trader.
The fees listed above are quoted to the trader by the trader's brokerage firm on a "per side" or "round turn" basis. A "per side" fee structure refers to the costs incurred by a trader opening a position in a specific market. A "round turn" fee structure includes fees involved in both opening and exiting a position in a given market. Except in the case of an investor taking delivery of an underlying asset defined by a futures contract, the "per side" fee is one-half of the total transaction cost, while the "round turn" fee is the actual transaction cost assumed by the trader.
Futures brokerage firms commonly offer a "round turn" (R/T) pricing module that includes all exchange fees, clearing fees, NFA fees and the broker's commission in one simple figure. In the parlance of the industry, this is known as "all in" fee and commission pricing.
Fees charged by the exchange directly to the trader in return for providing market access are called exchange fees. Exchange fees are assessed on a per transaction basis and vary depending upon the market and product being traded. Also, exchange fees are subject to periodic change due to evolving market conditions. Ultimately, it is up to the trader to monitor current trading statements and accounts for any variations in the exchange fee structure.
Upon a trader's market entry order being executed at the exchange, an independent party known as a "clearinghouse" facilitates the trade between buyer and seller. The clearinghouse provides an assurance that the financials between buyer and seller are in order, and the trade will be settled properly. In return for this service, a "clearing fee" is passed through to each party of the trade.
Traders with large capitalisations, or high volume traders, may purchase a membership to a desired exchange and gain substantial discounts regarding clearing and settlement fees. However, the outright purchase of membership to an exchange can be expensive, and leasing an exchange seat is often a more cost effective option.
For instance, purchasing a lifetime membership to the CME Globex exchange in June 2016 had a price tag of US$380,000, while a six-month lease of the same seat could be secured for US$1,700. Exchange membership pricing is relative to negotiations between membership holders and prospective buyers, so the future pricing of memberships is subject to change.
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National Futures Association (NFA) Fees
The National Futures Association (NFA) is the self-regulatory body of the derivatives industry, including the exchange-based trading of futures products. The NFA requires a fee of US$.01 per side of every exchange-based futures contract traded.
The NFA fee is the smallest of the fees associated with trading futures. It is directly billed to the trader through his or her brokerage account and is included in the R/T pricing schedule provided to the client by the brokerage firm.
A data fee is a flat fee charged to the trader by the exchange associated with the streaming of real-time market data. Data fees are charged on a periodic basis and vary widely depending on the type of exchange and client involved in trading operations. Futures institutions such as the CME Globex, ICE and Euronext are groups that have adopted a subscription model of charging for their streaming market data.
For instance, data fees for the CME Globex are US$85 monthly per-market for professional traders and US$15 monthly per-market for non-professional traders. Fees for the ICE are currently a flat US$110 per-market monthly, with no professional designation (all fees as of June 2016).
It is important for a trader to remember that each of these trading groups offers multiple exchanges in which a trader can engage. If a trader desires to trade multiple products on different exchanges, then data fees become a substantial portion of overhead. For instance, if a trader decided to actively trade energy products on the CME NYMEX and precious metals on the CME COMEX, total monthly data fees are doubled due to the per-market subscription structure.
Much like the forex, equities or options markets, a trader must have a trading account opened with a brokerage firm in order to participate in the marketplace. Due to the nature of futures trading, large amounts of leverage are afforded to each trader to enable transactions to be completed. Trades are made on margin through the broker, with funds held in customer-segregated accounts by a futures commission merchant (FCM). Thus, brokerage commissions are fees that are representative of the broker and FCM enabling the trader to interact within a futures market.
The level of brokerage commissions in the futures industry is often a point of negotiation between the brokerage firm and prospective client. Customers who trade large volumes on a daily basis are commonly offered lowered commission structures and other overhead-reducing benefits. As in many of the other fees associated with futures trading, commission structures enacted by brokerage firms are subject to change, and they're often specific to the client and firm involved.
Given the level of interaction between traders, brokerages and exchanges, futures market participants incur fees on a per-contract basis. The structure however may vary. Those trading in high volume and/or heavily capitalised may be eligible to lower exchange fees through a membership and/or commission structure through negotiations with their broker. However, regardless of current structure, due to the market's dynamic nature, it is up the individual trader to monitor current trading statements for any changes to his or her fee structure.
Any opinions, news, research, analyses, prices, other information, or links to third-party sites are provided as general market commentary and do not constitute investment advice. Friedberg Direct will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.