Quick Answer
A round-turn commission is a single charge covering the complete trade cycle, both the entry and the exit. Net profit equals gross profit minus the total round-turn commissions (the round-turn rate times the number of contracts). A commission shrinks a gain and enlarges a loss, so it always moves the result in the losing direction.
Gross profit is only the raw price result. The speculator actually keeps the net, which is what is left after the broker's commission comes out. The one point the exam presses here is how many times that commission is charged.
Round-Turn Commissions
Futures brokerage commissions are usually quoted as a round turn, and understanding that word is the whole battle.
- Round-turn commission: a single charge that covers the complete trade cycle, both the entry (opening) and the exit (closing) of the position. It is not billed twice.
- Subtract it once per contract: the round-turn figure already bundles both legs, so multiply the round-turn rate by the number of contracts and subtract that one amount. Charging it on the buy and again on the sell double-counts the cost.
- Per-side quotes: some sources instead quote a per-side commission. A round turn is two sides, so double the per-side figure to get the round-turn cost. On this exam the round-turn figure is the usual form, so read the wording before deciding.
Think of it this way: a round turn is priced like a round-trip ticket. One fare covers the flight out and the flight back, so you pay it once for the whole journey, not once per direction.
Exam Tip: Gotchas
- A round-turn commission is subtracted once for the whole trade, not once per leg. The round-turn figure already covers both the entry and the exit. Multiply the round-turn rate by the number of contracts and subtract that single amount; charging it on both the buy and the sell is the classic double-count.
Net Profit
With the commission defined, the net is a one-line subtraction.
- Commissions are a cost the speculator pays no matter how the trade turns out, so they always cut the result.
- A commission shrinks a gain and enlarges a loss. On a winning trade, net comes in below gross. On a losing trade, the commission adds to the loss, pushing it to a bigger negative. Either way the result moves in the losing direction.
Worked Net Profit (Winning Long)
Reuse the winning long from the gross-profit section: $750 gross on 1 corn contract. The broker charges a $50 round-turn commission per contract.
| Line | Figure |
|---|---|
| Gross profit (long, 1 contract) | $750 |
| Round-turn commission ($50 times 1 contract) | minus $50 |
| Net profit | $700 |
- Read-out: the single $50 round-turn cost, which covers both the buy and the sell, trims the $750 gross to a $700 net. The commission comes out one time for the round trip, not once per leg.
- Formula check: 750 minus 50 is 700. Foots.
Worked Net Loss (Losing Long)
Same 1-contract corn trade, but this time the long loses. The speculator buys at 420 and has to sell at 416, so the price fell 4 cents against the long: (416 minus 420) times $50 is a $200 gross loss. The same $50 round-turn commission still applies.
| Line | Figure |
|---|---|
| Gross loss (long, 1 contract) | minus $200 |
| Round-turn commission ($50 times 1 contract) | minus $50 |
| Net loss | $250 loss |
- Read-out: the commission does not cushion a bad trade, it adds to it. A $200 gross loss becomes a $250 net loss. The cost is paid whether the trade wins or loses.
- Formula check: a $200 loss minus $50 is a $250 loss. Foots.
Exam Tip: Gotchas
- A commission makes a loss bigger, not smaller. Students sometimes treat the commission as if it only nibbles at gains. It comes out of the account either way, so on a losing trade it deepens the loss. Subtract it from a negative gross and the result gets more negative.