A per-trade fee charged by the broker or prop firm for executing a trade. In futures trading, commissions are typically charged per contract per side (entry and exit), meaning a round-trip trade incurs two commission charges.
Why It Matters
- 1Commissions directly reduce your net profit and can significantly impact high-frequency or scalping strategies.
- 2A commission of $4 per contract round-trip might seem small, but a trader making 20 round-trip trades per day with 3 contracts is paying $240/day or roughly $5,000/month in commissions.
- 3This cost must be earned back before you see any profit.
- 4Different firms charge different commission rates, and the difference can be substantial for active traders.
Example
- 1Your prop firm charges $2.50 per contract per side (entry and exit) for ES futures.
- 2A round-trip trade costs $5.00 per contract.
- 3You make 10 trades with 2 contracts each in a day. Your total commissions are 10 trades x 2 contracts x $5.00 = $100. If your gross profit for the day is $400, your net profit after commissions is $300 — commissions consumed 25% of your gains.
Common Mistakes
- ✖Not factoring commissions into risk-reward calculations
- ✖Overtrading and letting commissions erode overall profitability
- ✖Assuming all firms charge the same commission rates — they can vary significantly