Home Forex Brokers Forex Broker Account & Trading Costs Explained

Forex Broker Account & Trading Costs Explained

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All Forex brokers charge fees in one form or another and there are commercial costs associated with each transaction performed. Many operators often do not report the total cost per transaction, which can make a big difference in the overall result of a portfolio. While the best-known cost is spread, there are other charges and costs that are applicable and should not be ignored. Transparent brokers will always be aware of their commissions and will include them on their website, on their trading platform with each operating ticket (or, ideally, in both locations).

Summary of Direct Commercial Costs

Direct trading costs consist of spreads, commissions, exchange rates, overnight financing costs, storage fees, and custody fees. Not all costs apply to all transactions and all depends on which asset is traded if traded by margin and the duration of each transaction. The broker must mention all the costs involved in each transaction; transparent brokers report them in their trading conditions section, and also provide examples of how they work, and all costs are calculated. In addition, trading costs can also be reported within the trading platform. This is usually the case if the broker offers its own trading platform. Some brokers also provide calculators so traders can calculate the cost of each trade before they start trading.

Spreads

Spreads are the best-known cost associated with a transaction and refer to the difference between the purchase and sale price. Spreads are the first and main source of income for brokers who live off the profit margin of gross spreads. Gross spreads can reach 0.0 pips in the EUR/USD pair, the most liquid currency pair having the lowest spread. All that’s above this level is the profit margin the broker charges.

While normally spreads are listed on each broker’s website or on the same trading platform, traders can easily view them at their terminal.

Commissions

Some accounts may have spreads as low as 0.0 pips in EUR/USD, but the broker charges a commission per lot. Fee-collecting accounts are generally ECN accounts that operate on a non-executive execution table. The traders get the gross spreads, or very close to them, and in return, the broker charges a commission.

Commissions are also charged on equity transactions and other assets (ETFs, bonds, etc.) will carry a commission. In order to obtain full details on which assets a commission is held, traders should consult the list of assets provided by your broker or obtain the information on the trading venue. More transparent brokers will report full contract specifications on their website, while the proprietary trading platforms will list all information on each transaction ticket. Volume discounts are often given to accounts that have commissions.

Rates of Exchange

Swap rates, which sometimes refer to refinancing rates, apply to each overnight position. Swap rates occur because of differences in interest rates in the base currency and in the trading currency. Brokers must report how this cost is calculated and there is a Long Swap Rate and a Short Swap Rate. Depending on whether operators take long or short positions, swap rates are credited or charged to the account balance. Many brokers cannot send positive exchange rates to traders.

  1. Forex traders can check the precise swap on your MT4 trading platform by doing the following:
  2. Right-click on the symbol you want inside the “Market Watch” window and choose “Symbols”.
  3. Select the desired coin and then click on “Properties” on the right side.
  4. Look at the bottom of the window until you can see “Swap Long” and “Swap Short”.

One-Day Financing Costs To-One

This is a cost related to margin operations. Brokers will explain how the actual one-day financing rate can be calculated. Depending on the amount of leverage held by transaction and which asset is being traded. This is a significant cost of monitoring, as it increases the longer an asset remains open in the account.

Storage Rates

Some brokers charge merchants a storage fee for keeping certain assets. This is an unnecessary charge, but you will be charged for holding positions in the account that add to the swap and/or financing charges. In essence, it is a commission charged for holding positions in its portfolio of assets. Brokers who charge storage fees should be avoided, as few brokers charge this fee.

Charges of Custody

The capital, the ETF, and the bonds come with custody fees, which are usually a small percentage that is charged annualized, but which can be deducted monthly with a minimum. Not all brokers offer trading shares or bonds and use CFDs that are excellent to enter the price stock without incurring escrow fees.

Summary of Indirect Trading Costs

Indirect commercial costs are costs that are not charged per transaction but include costs such as withdrawal costs and account inactivity fees. All brokers waive deposit charges, which is standard industry practice. Some brokers even reimburse their dealers for deposits made through a bank transfer that is usually charged by the merchant’s bank. Brokers generally do not charge withdrawal fees, but third-party charges, such as bank transfer charges, may apply. All charges related to deposits and withdrawals must be listed on the Broker’s website.

Another unnecessary charge that some brokers charge is an account inactivity charge. This generally applies after three months without commercial activity. The broker will then charge a quarterly fee, which will be listed in the terms and conditions of operation of the broker’s website until the account balance is exhausted or the transaction resumes.

In general, all fees that a broker can charge will be listed on their website under conditions of operation. Traders should review this section as the less known costs are only mentioned in it. In case this information is not provided, it is best to avoid the broker. Customer service can always be contacted, but again, a transparent and reliable broker will not hide your costs. Costs such as spreads and swaps are better informed directly from the trading platform as they can change quickly due to market conditions. The use of cost calculators provided by brokers can also be used to determine the precise costs per asset and traded volume.

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