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How to Read a Contract NoteEasy

The slip that arrives after a trade is the only document that says what you actually paid, as opposed to what the screen said before you pressed the button.

4 min read · 727 words

What this document is for

  • It is the record of one transaction, issued after it happened, and it is the first place where the difference between the quoted price and your price becomes a number rather than a feeling.
  • It is also the document you will need years later, for tax and for working out what a holding actually cost. It is worth being able to read it once rather than filing it unread.
  • Names differ — contract note, confirmation, trade confirmation, Abrechnung — and the contents are the same everywhere.

The two dates, which are not the same

  • Trade date — when the bargain was struck. This is the date that fixes the price, and usually the one that matters for tax.
  • Settlement date — when the money and the security actually change hands. Typically a day or two later for shares, longer for some instruments, and it is the date on which you become the owner in the register.
  • Between the two you have a contract and not yet an asset. Almost nothing goes wrong in that gap, and when something does, that gap is where it happens. Clearing and settlement is the mechanism.

The price, and the four things around it

  • The execution price — what you actually got, per unit. Compare it to what you saw: the difference is spread and, on a large or fast order, slippage. Why you did not get the price you saw is the page on that gap.
  • Consideration — price times quantity, before anything else. This is the raw amount.
  • Commission — the broker's own charge, and the only cost most people notice.
  • Taxes and levies — stamp duty or a transaction tax where one applies, plus regulatory levies. These vary by market and by instrument, and they are not the broker's choice.
  • Total — what actually left the account. If this does not equal the consideration plus every line above it, something needs explaining before the note is filed.

A note that shows only a total and a price is not enough to work out what the trade cost. Every venue's rules require the components; if they are not printed, they are available on request.

The two lines that say what you own

  • Capacity. Whether the broker acted as agent — finding you a counterparty in the market — or as principal, selling to you from its own book. Both are legitimate and normal. As principal, the broker's profit is inside the price rather than in the commission line, which changes what "no commission" means.
  • Custody or nominee. Whether the security is registered in your name or held for you in a pooled account. This is the line that decides what happens if the broker fails, and it is covered on what happens if my broker fails.

Instrument-specific lines

  • Bonds — accrued interest appears as a separate line and is added to the clean price. You are paying the seller for the coupon they earned but have not received. Reading a bond quote covers clean and dirty prices.
  • Foreign currency — if the instrument is priced in another currency, the note should show the rate applied and, ideally, the margin taken on it. That margin is often the largest cost on the note and the one least often itemised.
  • Funds — a note may show a forward price: you dealt at a price not yet known when you placed the order, struck at the next valuation point. That is normal for open-ended funds and worth knowing before it surprises you.
  • Derivatives — look for the contract size and the number of contracts, not just a quantity. Exposure is contracts times the multiplier, which is the point of reading a contract specification.

The checks worth doing on arrival

  • Does the quantity match what you asked for? A partial fill is normal and should be visible.
  • Does the instrument identifier match the one you meant? A similar name is not the same instrument, and share classes of the same fund differ in cost.
  • Do the components add to the total?
  • Is the currency conversion, if any, shown with its rate?
  • Does the capacity line say what you assumed it said?

Five checks, once, on the day it arrives. The broker statement playbook is about the periodic document; this one is about the single trade.