Each forex broker charges fees in one form or another. Then, there are trading costs linked to every trade placed.
Most traders typically ignore the overall cost per trade that can make a massive difference to the entire outcome of a portfolio.
As the most common cost is via spreads, other fees and costs are still applicable and must not be neglected.
Transparent brokers would always be upfront in their fees and list them either on the website, trading platform with every trade ticket, or both.
Direct Trading Costs
Direct trading costs consist of spreads, commissions, swap rates, etc. Not all costs apply to all trades, and it all depends on the kind of asset traded – if they traded on a margin and the duration and the duration of every trade.
The broker needs to mention all costs included in every trade. Also, transparent brokers list them in their trading conditions and give examples of how they incur and calculate costs.
Then, trading costs can be found inside the trading platform – especially if the broker offers a proprietary trading platform.
They also provide traders with calculators, letting them calculate the cost of every trade before placing it.
Spreads are the most usual cost associated with trade and refer to the difference between the bid and ask price.
In addition to that, spreads are the main income source for brokers who live from the mark-up on raw spreads.
Raw spreads can become as low as 0.0 pips in the EUR/USD -the most liquid currency pair that carries the lowest spread. Everything over this level is the mark-up that the broker charges.
Several accounts come with spreads as low as 0.0 pips on the EUR/USD. However, the broker charges a commission per lot.
Typically, accounts charging commissions are ECN accounts that run a no-dealing desk execution.
Here, traders get the raw spreads, or near to it. Then, in return, the broker charges a commission.
Aside from that, they charge commissions on equity trades, and different assets, such as ETFs, ETC’s, bonds, and more, will carry a commission charge.
Then, to get the complete details on which assets carry a commission, traders must either consult the asset directory given by their broker or get the information straight from the trading platform.
Transparent brokers will list the full contract specifications on their website as proprietary trading platforms list all the details in every deal ticket.
Volume discounts are often provided to an account that carries commissions.
Swap rates or rollover rates apply to every position held overnight. Swap rates happen because of the interest rate differences in the base currency and the quote currency.
Also, brokers will list the way this rate is calculated, and there is a Swap Long and a Swap Short rate.
Swap rates will either become credited from or debited to the account balance, depending if the traders take a long or short position. Many brokers fail to forward favorable swap rates to traders.