In Spot FX, Metals, and CFDs, we, the Liquidity Providers (LPs), often discuss trading commissions in terms such as, PER SIDE, PER ROUND TURN, and PER USD MILLION NOTIONAL. This may seem a little confusing so let’s break it down:  

PER SIDE – commission charged Per One Side of the Transaction.

ROUND TURN – commission charged on Both Sides (open and close) of a trade.

NOTIONAL – USD equivalent, face value amount of the trade in a particular currency pair.

For industry insiders these terms are second nature. However, for those outside the institutional world, it can be confusing, especially when they’re more accustomed to the PER LOT commission structure. 

Why Do LPs Talk in Millions and Not Lots? 

1. Volume: In the Institutional FX market, trading volumes are considerably higher. Much like wholesalers in other industries, Institutional Market Players find it more efficient to measure trading volume in larger units.
2. Standardization: Over time, using ‘per USD million’ as a unit has become an entrenched industry standard.
3. Simplification: It may seem contradictory, but this method was introduced to streamline and clarify charges.

Transitioning from Lots to Millions 

For a Broker, Fund, or High Net Worth Institutional trader accustomed to calculating trading costs in lots, adapting to the ‘per million’ structure requires a bit of math. Let’s say an LP quotes a charge of USD 10 PER SIDE, PER LOT, NOTIONAL. To transition this to a ‘per lot’ structure, you’d need: 

• The current price of the traded currency pair 
• The current price of the currency pair that will be used to convert the base currency of the traded pair into US Dollars (if not already USD)
• Contract size (1 lot = 100,000 units for currencies, example GBP/USD 100,000, 1 lot of gold = 100oz, 1 lot of silver = 5,000oz, etc. UNLESS your LP has unique contact sizes)

 These details are typically available in the Trading Conditions. 

Steps to Make the Transition: 

Option #1

• Determine how many lots of the selected currency pair equate to USD 1 million. 
• Calculate the cost per lot. 
• Ascertain the cost in pips or points (this is optional). 

Option #2 

(Less popular, some clients prefer to see non-notional commission per million)

What will you notice: 

For any currency paired with USD, calculations are straightforward as there’s no need for conversions. If your currency isn’t USD-denominated, a conversion is necessary, which means an additional step.

FX: If you’re calculating a commission based on a USD notional value of 1 million for different currency pairs, the actual commission in terms of absolute currency value can vary depending on the exchange rate of the currency pair you’re trading.

Example: EURJPY exchange rate is 157.572  We need to find out the commission on 10 standard lots of EURJPY denominated in USD, considering the fact that commission is based on USD per USD million notional and the current EURUSD exchange rate is 1.0751.

Let’s calculate the commission on 10 lots of EURJPY, considering the fact that your Liquidity Provider charges you 10 USD per USD million Notional.

Current EUR/JPY rate (9/11/2023, 6PM) – 157.572

Since EUR, not USD, is the base currency in this pair, we need to use the EUR/USD rate to convert the traded amount into USD (9/11/2023) – 1.0751

Conversion using the rates stated above: 

USD 1 million Notional equivalent in EUR = 1,000,000 USD/1.0751 = EUR 930,232.56 

Number of Lots = USD 1 million Notional in EUR 930,232.56 / 1 lot size (100,000)

Number of lots = 9.302 lots 

Commission = EUR 1 million * 1.0751 (to convert to USD) / USD 1 million (Notional) = USD 10.751 Answer: The commission for a EUR/JPY 10 lot trade is USD 10.75 and the commission per lot is therefore USD 1.08.

To save time, consider using our pre-made Excel file. It’s equipped with ready-to-use formulas tailored for FX, Metals, CFDs, and Crypto CFDs. All you need to do is update the commission per million. 

If you are looking for a more precise calculation, you need to update the currency rates. 

 If you spot a mistake, please email me [email protected]

Understanding trading commissions in terms of millions rather than lots is essential for institutional traders, brokers, and high-net-worth individuals transitioning from retail to institutional providers. It offers a more streamlined and standardized approach to calculating costs, especially when scaling the operations. By familiarizing oneself with these terms and formulas, transitioning from a ‘per lot’ to a ‘per million’ structure becomes a straightforward process.