The fees and commission being charged by the Forex brokers is something that keeps their operations going. Most of the time, traders tend to neglect the overall cost per trade all though it actually makes a huge difference when it comes to the outcome of the trader’s portfolio. The most obvious cost among these is taken through spreads but there are also other fees and costs that you need to know and shouldn’t be ignored too. Some brokers are transparent with their fees and even list them on their websites and on their particular platforms.
What are Direct Trading Costs?
As for the direct trading costs, it can be made up of commissions, spreads, overnight financing costs, swap rates, custodial fees, and storage fees. But different trades apply different costs. The costs also depend on the assets that are being traded, if it is margined or not. To be fair with you, brokers mention these costs right before every trade is done. They are obligated to do so. Those brokers who are transparent with their clients and the trading software they use from IRESS even list their costs with their trading conditions as well as examples of how these costs are calculated and deducted from the trading account.
Additionally, these trading costs are also seen in the trading platform, allowing you to know the costs that you will be paying in exchange for their services. There are also trading platforms that provide calculators to easily determine the costs of each trade before even placing one.
Spreads
As mentioned above, spreads are considered as the most obvious costs that are being tied up with your every trade. It refers to the difference between the asking price and the bid price. Spreads are known to be the primary income source of brokers who are living up out of raw spreads. Raw spreads can go as small as 0.0 pips for EUR/USD, which is currently the most liquid currency pair. Spreads are either listed on the website of the broker and the trading terminal as well.
Commission
Some brokers charge 0.0 pips for EUR/USD and this is quite low but is charging a commission per lot. ECN accounts are mostly the ones that charge commissions and their operation are mostly a no-dealing desk execution. Traders tend to get the raw spreads in exchange, the broker will charge them with the commission.
Aside from what’s mentioned above, commissions are also charged for every equity trade and other assets such as ETC, ETF, bonds, and others. For you to know the details on which of your assets requires a broker’s commission, you must first consult the directory which contains all the information you need about the commission and other similar fees.
Swap Rates
Rollover Rates or Swap rates are applied to positions that remain open throughout the night. These rates occur because of the rate differences of the quote currency and the base currency. Most brokers will list how this rate is being calculated or how much you should pay for an IRESS trading software. Swap rates depend on whether the broker takes a long or short position, it should be credited or debited from the account balance of the trader.