What happens when you press Buy
What you learn in 3 minutesThis lesson follows one USD/ZAR order from the moment you press Buy to the moment the position is closed, and shows which of the four steps each cost attaches to.
20 points on 0.10 lots of USD/ZAR
| Step | Amount | Note |
|---|---|---|
| Order placed | R0.00 | Pressing Buy sends an instruction to the broker; no money moves yet. |
| Order filled at | 18.4100 | The price the platform shows when the fill is confirmed. |
| Position size | 0.10 lots | One lot of USD/ZAR is 100,000 US dollars, so 0.10 lots is 10,000 US dollars. |
| Price when closed | 18.4120 | A move of 20 points, where one point is 0.0001 rand. |
| Gross result | R20.00 | 10,000 US dollars x 0.0020 rand = R20.00. |
| Spread cost | R5.00 | A spread of 5 points on 10,000 US dollars: 10,000 x 0.0005 = R5.00. |
| Commission | R7.00 | A flat charge per lot; this varies between brokers. |
| Net result | R8.00 | R20.00 gross minus R5.00 spread minus R7.00 commission. |
The broker may round the fill price, quote a wider spread around news, charge swap if the position is held overnight, and apply its own commission per lot; all of these vary between brokers.
The mistake people make here
The common mistake is to count the gross move as profit and never subtract the spread and the commission. On a 20-point move, the costs in the example above take R12.00 of the R20.00, so most of the gain is gone before anything else happens. Before placing an order, work out the cost first and the target second. If the costs are larger than the move you expect, the trade does not make sense on those numbers.Check yourself
If the price moves 30 points in your favour on 0.10 lots of USD/ZAR, what is the gross result in rand?
10,000 US dollars x 0.0030 rand = R30.00.
Using the same costs as the example, what is the net result on that 30-point move?
R30.00 gross minus R5.00 spread minus R7.00 commission = R18.00.
How much of the 20-point move in the worked example is left after costs?
R8.00 of R20.00, which is 40 per cent of the gross move.