What happens when you press Buy
You will see a worked example where the price moves 20 points in your favour on 0.10 lots, and what is left in rand after the spread and the commission are taken out.
Nothing here is a prediction or a recommendation; it is only a description of the mechanics.
The order leaves your platform and becomes a request at the broker
When you press Buy, your platform sends an instruction to your broker. That instruction is not a trade yet. It is a request to buy a set amount of USD/ZAR at the best price the broker can find. The request travels over the internet in a fraction of a second. It carries three details: the instrument, the size, and the direction.
The size is measured in lots. One standard lot of USD/ZAR is 100,000 US dollars. A mini lot is 10,000. A micro lot is 1,000. Your platform shows the size you have chosen before you press Buy. If you choose 0.10 lots, you are asking to buy 10,000 US dollars and sell the equivalent in rand.
The direction is either buy or sell. Buy means you profit if the price rises. Sell means you profit if the price falls. The platform does not know which way the price will go. It only passes your instruction to the broker. The broker then looks for a price to fill it.
The broker fills the order at a price you do not control
The broker fills your order at the best available price at that moment. That price is called the fill price. It is not the price you saw on the chart a second earlier. The chart shows the last traded price, not the next one. Between your click and the fill, the price can move. Usually the move is tiny, but it is never zero.
The fill price includes the spread. The spread is the difference between the buy price and the sell price. If the chart shows 18.4100, the buy price might be 18.4105 and the sell price 18.4095. You buy at the higher price and sell at the lower one. The spread is how the broker covers its costs. It varies between brokers and can widen around news.
Some brokers also charge a commission. That is a separate fee per lot, charged when you open the position. It is not part of the spread. You will see it on your statement as a separate line. The commission also varies between brokers. Some brokers include it in the spread instead. You need to check which model your broker uses.
The open position lives on your account until you close it
Once filled, your order becomes an open position. It appears in your platform with an entry price, a current price, and a profit or loss figure. That figure changes as the price moves. It is not money in your pocket yet. It is an unrealised result. It becomes real only when you close the position.
While the position is open, you can close it at any time during market hours. Closing means you do the opposite trade. If you bought 0.10 lots, you sell 0.10 lots. The broker fills that closing order at the current price. The difference between the entry price and the closing price is your gross result. Costs are subtracted from that gross result.
If you hold the position overnight, the broker may charge or pay swap. Swap is an interest adjustment based on the two currencies in the pair. It varies between brokers and can change daily. It is not a cost you can predict from the spread alone. If you do not plan to hold overnight, you can avoid it by closing before the daily rollover time.
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.
Doing it once, step by step
You are about to follow one USD/ZAR order from the click to the closed position, in the order the events happen. Each step shows where a cost attaches.
- 01
Check the size and direction before you press Buy
Decide how many lots you want. For this example, use 0.10 lots, which is 10,000 US dollars. Check that the direction is Buy if you expect the price to rise. The platform will show the size and direction on the order ticket. Confirm both before you click.
- 02
Press Buy and watch for the fill price
Press Buy. The platform sends the request to the broker. Within a moment, the order ticket changes to an open position. The entry price shown is your fill price. It may differ slightly from the chart price you saw. That difference is normal and is part of the spread.
- 03
Note the spread and commission on your statement
Look at the open position. The current price will be lower than your entry price if you bought, because of the spread. That gap is the spread cost. If your broker charges commission, you will see a separate negative amount on your statement. Write both figures down. They are already taken from your account balance.
- 04
Watch the gross result as the price moves
The platform shows a profit or loss figure for the open position. That figure is gross. It does not yet include the commission if the commission is charged separately. It does include the spread, because the current price is the price you would get if you closed now. If the price moves 20 points in your favour on 0.10 lots, the gross figure will show R20.00.
- 05
Close the position to turn the result into cash
When you decide to close, press the close button. The platform sends the opposite order. The broker fills it at the current price. The gross result is now fixed. The spread is already inside that result. The commission, if any, is subtracted from your balance. What remains is the net result on the trade.
- 06
Subtract the costs to find the net result
Take the gross result and subtract the spread cost and the commission. In the worked example on this page, a 20-point move on 0.10 lots gives R20.00 gross. The spread takes R5.00 and the commission takes R7.00. The net result is R8.00. That is 40 per cent of the gross move. The rest went to costs.
The mistake most 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.
Questions that come up next
Can I set the price I want before I press Buy?
Yes, you can place a limit order. That tells the broker to fill you only at your chosen price or better. A market order, which is what pressing Buy usually sends, fills at the best price available at that moment. The fill price is therefore not under your control with a market order. You can choose the type of order before you send it.
What does 0.10 lots of USD/ZAR actually mean in rand?
It means you are buying 10,000 US dollars and selling the rand equivalent. At a price of 18.4100, that rand equivalent is R184,100. You are not putting up that full amount yourself. The broker sets aside a smaller deposit as margin. The position size is still measured in US dollars, not rand.
Why does my profit or loss change while the position is open?
The position is marked to the current price every moment the market is open. That running figure is unrealised. It is not in your account balance yet. It becomes a realised result only when you close the position. Until then, the number on the screen can go up or down.
How do I close the position, and what price do I get?
You close it by sending the opposite order for the same size. If you bought 0.10 lots, you sell 0.10 lots. The broker fills that closing order at the best available price at that moment. That closing price is the one that turns your open position into a realised result. The spread applies again on the closing side.
Are there costs I pay only after I close?
The spread and the commission are attached to the open and the close. Swap is different. If you hold the position overnight, the broker may charge or credit swap for each night it stays open. Swap rates vary between brokers and can change. You can check the swap rates on your platform before you hold a position overnight.
Does the FSCA set the spread or the commission?
No. The FSCA regulates the broker, not the price of the trade. Spreads, commissions and swap are set by each broker. That is why they vary between brokers. You need to check the costs on your own broker's platform. The regulator does not publish a standard rate for these.
The words used on this page
- Fill price
- The price at which the broker actually completes your order. It is not the price you saw on the chart a moment earlier. It can be slightly different because the market moves between your click and the fill.
- Spread
- The gap between the buy price and the sell price. You buy at the higher price and sell at the lower one. The broker keeps that difference as part of its costs.
- Lot
- The unit used to measure the size of a trade. One standard lot of USD/ZAR is 100,000 US dollars. A mini lot is 10,000 and a micro lot is 1,000.
- Unrealised result
- The profit or loss shown on an open position. It changes as the price moves. It is not money in your account until you close the position.
- Commission
- A separate fee some brokers charge per lot when you open a position. It is not part of the spread. Some brokers include it in the spread instead, so you need to check which model yours uses.
- Swap
- A charge or credit applied when you hold a position overnight. It varies between brokers and can change. It is separate from the spread and the commission.
What to take away
- Pressing Buy sends a request, not a trade; the broker fills it at the best available price.
- The fill price includes the spread, and some brokers add a separate commission per lot.
- An open position shows an unrealised result that becomes real only when you close it.
- Swap may apply if you hold the position overnight, and all these costs vary between brokers.