Tag: Forex Costs

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Beginners Forex Education Forex Basics

What Should I Expect With Regard to Forex Commissions?

A commission is a cost for the trader. Brokers usually charge commissions for their work and this has an impact on our final result. These costs directly or indirectly undermine the profitability of trading. However, they are necessary operating costs, so it is important to know them in order to reduce them. A commission is […]

A commission is a cost for the trader. Brokers usually charge commissions for their work and this has an impact on our final result. These costs directly or indirectly undermine the profitability of trading. However, they are necessary operating costs, so it is important to know them in order to reduce them. A commission is […]

A commission is a cost for the trader. Brokers usually charge commissions for their work and this has an impact on our final result. These costs directly or indirectly undermine the profitability of trading. However, they are necessary operating costs, so it is important to know them in order to reduce them.

A commission is an economic consideration for a service performed. To do trading we must have the services of an intermediary (broker) that is responsible for executing the purchase-sale operations we request as well as other aspects such as money lent by leverage and, in some cases, currency changes, the cash movements we make on our account,…

Commissions and Their Importance in Our Outcomes

All financial services companies have the obligation to show their commissions before contracting the services; so that the customer is in a position to value and compare them. Almost all brokers apply the same commission rates and due to the increasing competition in recent years, these commissions are increasingly adjusted for the benefit of traders.

How Do Commissions Impact Our Trading?

We’ll start by recognizing what kind of trading we’re going to do. The most important commissions, to have a greater impact, are those that come from the sale of assets. The size of the trade (amount of money to invest) and the number of trades we make (the more trades the more fees applied) have a direct impact on this type of commission.

Therefore, the trader must determine what type of trading you do. With what investment style do you feel most comfortable? (Scalping, Swing trading,…). After thinking about our trading style we will be in a better disposition to determine if we are interested in working with a broker that offers better conditions in one type of commission or in another.

Another important aspect is the level of average capital in the account. This determines the size of our operations and therefore we may be interested in working with one or other brokers based on their commissions.

“A study of how we operate in the financial markets can be very useful to save us commissions.”

More Frequent Commissions When Trading

Spread: It is the difference between the purchase price and the selling price of a financial asset. The market price is only one. However, the broker offers the trader two prices: one to buy and one to sell. Most Forex and CFDs brokers get their fees this way. This differential is applied to us when opening a trade. That is, we must recover the spread first to enter into profits if the operation advances in our favor.

Bid and Ask:

  • Bid is the price offered to sell the currency pair or instrument it was.
  • Ask is the price offered to buy the currency pair or instrument it was.

Ask will always be a few pips more expensive than the Bid. The difference between the two is the Spread.

Position Size: Applying commissions per operation in the form of Spread assumes that this cost has a direct impact depending on the size of the position (the amount of money to invest). Therefore, the first thing we must do is to calculate the value of the pip; both to keep in mind the amount of the spread in monetary terms and to know how much our potential profit or our maximum loss can amount to.

Fixed spreads and variable spreads: When we talk about fixed spreads we are referring to the fact that, although the price fluctuates in the market, the Spread remains constant. The spread will be different depending on the currency pair. However, when a fixed spread is charged, it remains unchanged for that same financial asset.

On the other hand, there are brokers that offer variable or floating spreads. The spread between the “bid” and the “ask” varies depending on the market conditions. Depending on the liquidity that exists in the market at a specific time, a more or less low Spread will be applied. When the brokers offer us this condition of variable spread, in the rates we will put the minimum that they charge, and in moments of less liquidity the Spread will increase.

Fixed commission per trade: Outside of Spread, the broker may charge a fixed amount for opening and closing the position. Sometimes they can even apply the two commission rates at the same time (Spread plus fixed commission).

Most online brokers usually apply only the spread but there are others, especially ECN brokers, targeting traders with higher volumes, that choose to offer smaller spreads but compensate with a fixed commission each time a trade is made. Depending on the average size of our trades, we will assess whether it is convenient to use it or it is more profitable for us to trade only with Spreads.

“A very short-term trading style (scalping type) is more sensitive to this type of commissions. But if your trading style is to trade more in the medium term, these commissions are not so decisive for the final result.”

Leverage and Swap: When opening a Forex trading position it is not necessary to contribute all the money required by the transaction. The money is actually borrowed by the broker and what we leave is a guarantee to be able to open the transaction.

The margin guarantee is a percentage of the size of the trade. Depending on the asset we decide to trade, and the conditions of the online broker, this percentage will be higher or lower. It’s what’s known as leverage. This money is put on the market by the broker himself and must be liquidated before the end of the market day.

If this money is not settled before the end of the day, we will be granted an automatic extension, a refinancing (rollover) that earns interest. The Swap commission is based on these interests.

Therefore, the Swap fee is nothing more than the overnight interbank market interest rate for keeping the position open (with money borrowed from leverage). This fee varies according to central banks’ interest rate policy and interbank market conditions.

Swap: a percentage that is applied to the size of the transaction. It can also be expressed in pips, for each contract or lot traded in the operation (so it will be necessary to know the value of each pip). However, this fee can even be credited to our account instead of a fee. How is this possible? The explanation is given when trading on the Forex market, where each trade is composed of the purchase of one currency and simultaneously the sale of another.

When you sell a currency, you charge the interest rate. When you buy it, you pay us. Better explained: We will pay the Swap of the currency sold and we will pay the Swap of the currency purchased. In these situations, it may be positive to plan multi-day Forex operations if it is consistent with our trading strategy.

Commission on cash withdrawal: We are not referring to the one that charges the chosen means of payment. There will be means of payment that will not charge you anything and others that can apply some commission to send or receive money. We focus on the commissions your broker can charge you for withdrawing funds. Usually, when depositing there is no commission but when withdrawing the broker can apply a commission of its own.

Commission for foreign Exchange: This type of fee can have a greater impact if it is added with the withdrawal of funds from the account. Both can be added. A trading account is denominated in a particular currency. In most cases brokers allow us to deposit funds in the most common currencies. So, the funds in the account may or may not be in our local currency. Ideally, the trading account should be in the local currency, as not being so implies a currency conversion each time funds are deposited or withdrawn.

Commission for inactivity: There are brokers who can apply a commission of this type and others who do not. This commission is determined by the non-use of our trading account in a given period of time established by the broker. Inactivity means not trading or not logging into the trading platform.

Categories
Forex Money Management

How to Save Money on Broker-Related Fees

When it comes to trading forex, from the outside it looks like it is a fantastic and quite straightforward way to make money. In reality, there are a lot of hidden costs that your broker may be adding to our trades. We are talking about spreads, commissions, swap charges, deposit fees, withdrawal fees, and more. […]

When it comes to trading forex, from the outside it looks like it is a fantastic and quite straightforward way to make money. In reality, there are a lot of hidden costs that your broker may be adding to our trades. We are talking about spreads, commissions, swap charges, deposit fees, withdrawal fees, and more. […]

When it comes to trading forex, from the outside it looks like it is a fantastic and quite straightforward way to make money. In reality, there are a lot of hidden costs that your broker may be adding to our trades. We are talking about spreads, commissions, swap charges, deposit fees, withdrawal fees, and more. All of these fees will add up over time and if you are not careful they can really eat into your profits. We are going to be looking at a few of the things that you can do that could help you to reduce the fees that you are paying and to help you save some of your profits from going into the broker’s profits.

Find the Right Broker

There are a lot of brokers out there, with so many being available, there is also a lot of variety when it comes to the fees that are being charged. Some have high, some have low and some do not have any, but you will need to weigh up the benefits between the fees and the features that you will receive. A broker with very low fees may not be offering the same features as one that charges higher fees. However, if you are paying too much on all fronts, then it may be time to look for another broker. There are industry standards when it comes to the fees, so if you are with one that is far higher than the rest of the market, then you should probably think about changing brokers and going for one with slightly lower overall fees.

Swap Charges

A swap charge is a fee that your broker charges when you hold a trade overnight, these charges are applied directly to the trade that is being held. You won’t find many brokers that do not have swap fees, but there are some out there and some brokers also offer Islamic accounts which do not have swap fees, but the spreads on those accounts are often higher. For many brokers there isn’t much you can do when it comes to the swap fees, they are something that you may need to accept, but you can of course reduce the amount of money that you are paying by trying to close out your trades before the cut-off point in the evening. You will need to weigh up whether it would be worth closing our trade early to avoid the swap or to accept the swap if your trade will make more profit.

Spreads

Spreads are a big one, the spread is the difference between the buy price and the sell price, if a broker has a big spread then the markets will need to move a lot more in order for you to make the same profit than you would with a broker with a lower spread. Brokers often offer different account types, accounts like ECN accounts will have generally lower spreads, so these accounts are good ones to go for If you have a high spread account, there is no harm in getting in touch with your broker to ask if they can lower your spreads, most can do this on an individual account and if you are a good customer of theirs, many will b happy to give a little discount to your spreads.

Commissions

The average commission being charged these days seems to be around $6 per lot traded. Some accounts have commissions and some do not, those without commissions often have large spreads as the commission is often charged as a way of reducing h spreads on the account. If you are being charged anything more than $6 per lot traded then you are most likely being ripped off, either look for a new broker with a lower commission or get in touch with your broker in order to ask that your commission is reduced, if you have a high trade volume with the broker, they will most likely be happy to reduce your commissions a little bit.

Deposit Fees

A bit of a dinosaur this one, but some brokers actually still charge for depositing money into your account, that is right, they charge you to put your money into their accounts. If your broker does this, get out, that is the only advice, there is no place in the forex trading world for brokers that charge you for putting your money into their account.

Withdrawal Fees

Just like the deposit fees, some brokers will charge to withdraw your money. This can be a bit of a pain especially if it is not advertised on the site. There are a few things that you can do, you could look for a broker that does not offer withdrawal fees, there are a lot of them out there but this can be a bit of a hassle, moving all your money into another trading account. You could also check which withdrawal methods are available as some brokers will charge for one method but not for another, so it may be worth changing the method used in order to use one of the ones that do not have a charge. If you are a big player, with a high trade volume, get in touch with your broker, some may be willing to waive any fees that you would otherwise have to pay for your withdrawals.

Rebates

You may have heard of rebates, this is a way of getting back a bit of the money that you are paying through your commission or spreads. There are a number of reputable companies out there that offer you rebates for your trades through a number of different brokers. You will have to sign up for a new account through their introducing broker link, but apart from that, it is a completely automated process. There are also some brokers that will offer rebates directly from them. There will often be a trade volume requirement on these rebates, but if you manage to achieve them, it will save you money getting back a percentage of the commission that you are paying, well worth it if the commissions and spreads are already quite low or at least in line with the industry standards.

Interest

Some brokers will offer you interest for simply having money in your account, a fantastic way to make a little extra money and to help counter the effects of the fees that you are paying. Of course, you are not going to be making thousands a month through interest, but even a few extra dollars per week or month will help to offset some of the fees that you are paying. There aren’t as many brokers offering this sort of thing, but if you are able to find one with other decent features and fees, then it is a great way of making a little more.

Those are some of the things that you can do to help reduce or counteract the fees that your broker may be charging. For many, there may be nothing you can do about them, but for others, it may be worth at least getting in touch with your broker in order to ask whether or not they can reduce any of the fees that you are being charged. There is no harm in asking and many brokers will be happy to offer you something new if you are a good customer of them.

Categories
Forex Basics

Is Forex Trading Expensive? Here’s the Low-Down…

Anyone who has ever considered trading currencies has pondered on the idea of whether it is a costly endeavor available to only a few well-to-do individuals on the planet. However, no matter what your starting point is, there are several questions to be answered to be able to approach this topic systematically, objectively, and pragmatically. […]

Anyone who has ever considered trading currencies has pondered on the idea of whether it is a costly endeavor available to only a few well-to-do individuals on the planet. However, no matter what your starting point is, there are several questions to be answered to be able to approach this topic systematically, objectively, and pragmatically. […]

Anyone who has ever considered trading currencies has pondered on the idea of whether it is a costly endeavor available to only a few well-to-do individuals on the planet. However, no matter what your starting point is, there are several questions to be answered to be able to approach this topic systematically, objectively, and pragmatically. Today, we are covering key areas of interest that will provide any interested individual with direct insight into prices, expenses, and overall monetary requirements to start trading in the spot forex market.

What Does Expensive Mean?

Before we continue with actual data on expenditures, we need to ask ourselves what we consider to be expensive. Forex enthusiasts are diverse in all possible aspects – background, professional experience, academic qualification, and income, among others. Due to these qualitative and quantitative differences, we all have a different start in terms of how financially prepared we are to cover the basic costs this market entails. As we will be discussing these later in the text, the main idea here is that some people may find 500 USD to be an exorbitant sum they had to save up gradually over time. While this group of people that needs to be careful with spending is considered to be the majority, some wealthy individuals may not have to give their expenses much thought. Therefore, whether you are like most beginners, someone who cannot afford to lose the initial investment right away, or you belong to a fortunate handful of those who need not worry as much about their finances, you will need to consider topics such as money management and trading psychology to be able to manage your traders effectively.

How Do You See Trading?

Many beginners have an ultimate goal of becoming a professional trader, often confusing the term professional for profitable. However, the only requirement traders may be lacking, in the beginning, is using real money, regardless of the amount invested. For some people, forex trading is aimed at providing for their existence, while others choose to trade currencies on the side. We have discussed before how the U.S. market’s size is big enough for the locals to enjoy great volume in a variety of markets, while forex is almost the only option for traders to build their finances in some other countries of the world. However, whether you choose to partake in different lucrative activities or direct all of your attention to trading currencies, you are a professional trader the moment you start investing your own finances. Naturally, for this to be a successful and sustainable source of income, beginners are always advised to slowly invest in education and demo test their trading knowledge.

What Part Do Your Expectations Play?

Traders often hear inviting stories about someone who was able to create an empire from scratches, starting with a 100 USD and building his finances to what you see as your dream-come-true scenario. The problem with this is that trading functions differently and there is no magic formula that will take all of your daily problems away and cover your loans and future investments in a matter of three years or so. It can be quite discouraging and stressful for any trader to enter this market thinking only about the ultimate goal, which often derails their attention from topics that are much more important. Whether your goal is to quit your job and trade alone to make a living or have a side activity to cover some of your expenses, always think about creating a solid foundation that will make this business endeavor possible and profitable down the road.

General Costs in Forex

The exact expenses depend on a number of factors such as brokers and trading styles, habits, and positions, among others. The usual minimum brokerage fee equals 500 USD although some may go down to a 100 USD limit. In terms of general expenses, most brokers offer an automatic calculator that should help you get an idea of your overall expenses and whether you see this market as worthy of your time and effort or not. Traders also need to consider commission fees charged for entering and exiting a trade. Commissions can vary substantially, so 1k lot on major currency pairs can amount to 4 cents USD, while the fee could be as high as 6 cents on more exotic pairs.

Another cost to take into consideration is spreads, i.e. the difference between the bid and the ask prices, which can, for example, be only 0.5 for major currency pairs or exceed 175.00 for more exotic currencies. You will also need to include rollover in your expenditure calculations, which is the interest differential between the two currencies comprising the pair you are holding during the time of the day when banks are closed. Aside from the previously mentioned fees, there are often other hidden costs to remember such as, for example, inactivity fees, monthly or quarterly minimums, margin costs, and the ones related to calling a broker on the phone.

Risk and Leverage

The two terms are extremely important for all traders, be they beginner-level or more advanced. In forex, we use leverage as a tool to increase returns on the initial investment. However, most traders typically struggle with overleveraging, which may lead to a loss of 25% (or more) of one’s account, which can be extremely difficult to compensate for. Traders are always advised to learn how to manage their leverage as high leverage is an inherent part of trading currencies. While starting with lower leverage is a wise decision, it is also vital that traders get used to adding leverage to the winning trades.

These steps reflect traders’ ability to exercise control over themselves and their trades, thus helping them minimize the risks in which this market is so profoundly abundant. Traders also need to ask themselves questions related to the capital they are willing to allocate to any one position, the amount of money they are ready to put at risk on a single trade, and how much exposure to risk they are comfortable with. Trading expenses, therefore, do not only stem from fixed fees traders are charged at some point, but the decisions they make along the way, which can have a severe impact on their financial stability.

Returns, Losses, and Gains

The final point to take into consideration is how you plan your finances to increase and how you expect to react to wins and losses. Our expectations often include some unrealistic return percentages that exceed the capabilities of the best traders out there. So, when we lose, we tend to increase the leverage hoping to overcome the discomfort, pushing ourselves further in the losing group. The same happens with wins because many traders view forex-related activities like gamblers, entering traders with no specific goal or criterion, which naturally affects one’s finances. Traders require a system that will explicitly tell them how and when they should enter and exit trades, which requires time and effort rather than money alone.

Last but not least, it is important to mention that most people give up trading in the first 90 days because they start investing too quickly. For you to be able to see whether this market is expensive or not, you alone need to see what your goal is and what you wish to achieve in trading. As you can see, the answer depends solely on you because, between the costs, profits, and other ventures, you will be the only person making the decisions. Forex can certainly bring money to everyone ready to learn, but you need to see whether you would be satisfied with the percentage return based on your initial investment and how you can create consistent and sustainable returns. With the right money management and proper attitude of going slow and learning steadily, any beginner can learn how to manage his/her finances and evade the challenges this market entails.

Categories
Forex Assets

Analysing The CAD/HUF Forex Currency Pair & Determining The Costs Involved

Introduction

Introduction

Introduction

The CAD/HUF is an exotic currency pair where CAD represents the Canadian Dollar, and HUF – the Hungarian Forint. In this article, let’s understand some of the basic concepts you should familiarise with before trading the CAD/HUF pair.

For this currency pair, the CAD is the base currency and the HUF the quote currency. In this case, the price associated with the CAD/HUF pair shows the amount of HUF that 1 CAD can buy. For example, if the price of CAD/HUF is 232.97, it means that 1 CAD can buy 232.97 HUF.

Spread

Spread in the forex market is the difference between buying price, i.e. ‘bid’ and the selling price, i.e. ‘ask.’ The spread for the CAD/HUF is – ECN: 50 pips | STP: 55 pips

Fees

The trading fees you are charged depends on the type of forex account you have. STP accounts carry no trading fee, while for the ECN accounts, the trading fees are determined by your forex broker.

Slippage

In highly volatile trading sessions, sometimes the price at which you trade is different than the price at which that trade will be executed. This difference is called slippage and is usually determined by your broker’s speed of execution.

Trading Range in the CAD/HUF Pair

In the forex market, a currency pair will fluctuate differently across different timeframes. Trading range helps a forex trader analyze how a given pair moves (in terms of pips) over a given timeframe, which is an important risk management tool.

For example, let’s say that during a 1-hour timeframe, the CAD/HUF pair has a trading range of 10 pips. A forex trader trading this pair can expect to gain or lose $43 since the value of 1 pip is $4.3

The table below shows the minimum, average, and maximum volatility of CAD/HUF across different timeframes.

The Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart.
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator.
  4. Shrink the chart so you can determine a larger period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

CAD/HUF Cost as a Percentage of the Trading Range

Trading costs that can be expected in forex include slippage, spread, and brokers’ fees. Thus, Total cost = Slippage + Spread + Trading Fee.

Forex traders should learn how these costs change across different timeframes as the currency pair price fluctuates. The tables below show the percentage costs (in pips) that can be expected when trading the CAD/HUF pair.

ECN Model Account

Spread = 50 | Slippage = 2 | Trading fee = 1

Total cost = 53

STP Model Account

Spread = 55 | Slippage = 2 | Trading fee = 0

Total cost = 57

The Ideal Timeframe to Trade CAD/HUF

With both the ECN and the STP forex trading accounts, the 1-hour timeframes have the highest costs. Therefore, for short-term traders, using the timeframes with minimum volatilities increases the trading costs they will incur. For the 1H, 2H, 4H, and the 1D timeframes, you will incur lower trading costs by trading the CAD/HUF pair when the volatility is above average.

For both types of trading accounts, longer time frames, i.e., the weekly and the 1-month, offer lesser trading costs for the pair. It is worth noting that forex traders can minimize their costs by using limit order types, which eradicate the risks of slippage. Here’s an example with the ECN account.

Total cost = Slippage + Spread + Trading fee

= 0 + 50 + 1 =51

You can notice that when the cost associated with slippage is removed, the overall costs for trading the CAD/HUF pair significantly drops. The highest cost reduces from 898.31% to 864.41%.

Categories
Forex Brokers

Hidden Forex Brokerage Charges to Watch For

Forex brokerages aren’t always transparent about some of their costs. Many use sleek, impressive websites to make themselves seem more legitimate, which keeps some of their potential clients from reading the fine print. Don’t let us scare you – trustworthy brokers are out there, but it is important for traders to understand how to spot […]

Forex brokerages aren’t always transparent about some of their costs. Many use sleek, impressive websites to make themselves seem more legitimate, which keeps some of their potential clients from reading the fine print. Don’t let us scare you – trustworthy brokers are out there, but it is important for traders to understand how to spot […]

Forex brokerages aren’t always transparent about some of their costs. Many use sleek, impressive websites to make themselves seem more legitimate, which keeps some of their potential clients from reading the fine print. Don’t let us scare you – trustworthy brokers are out there, but it is important for traders to understand how to spot scammers. One of the most common things that brokers try to hide are unfavorable fees. 

We’ll start with two fees that should be advertised transparently, although some brokers try to hide these fees if they are unfavorable.

Spreads

The spread is the difference between the bid and ask price on a trade. This is how most forex brokers make their profit, alongside commissions. The amount of the spread can vary widely, but the average spread on the pair EURUSD is around 1.5 pips. Anything above 2 pips on this pair is quite high, while anything of 1 pip or below is favorable. It’s common practice for brokers to offer lower spreads on accounts that require larger deposits. However, some brokers try to hide their spreads, or they don’t list them on their websites at all. This is a sign that the spreads are high, and traders should run in the other direction. While spreads should be listed transparently on every broker’s website, this isn’t always the case with some scammers. 

Commissions

Most brokers charge commission fees unless they have high spreads to make up for them. Just like with spreads, this is something that should be clearly advertised on the broker’s website. If a broker doesn’t charge commission fees, this is something that they should also advertise on their website. If you can’t find any information about commissions, then chances are that high commission fees are applicable. 

Now that we’ve covered two of the main brokerage fees, we will move on to the charges that aren’t usually presented transparently on the broker’s website. It’s easy to find a broker that doesn’t charge any of the following fees, aside from withdrawal fees.  

Deposit/Withdrawal Fees

There are brokers out there that offer fee-free deposits and withdrawals, although most charge some type of fee. Most commonly, deposits do not carry charges, but withdrawals do. Our advice would be to look for a broker that charges one or the other and to be sure that those charges are listed transparently. If the broker doesn’t even have a funding/payment methods page or information on their website, then there is no telling how high those fees may go. For example, some brokers charge fees of 7% on debit/credit card withdrawals. If you’re withdrawing $1,000, then you’d be looking at a steep fee of $70. If you can’t find a brokerage offering fee-free withdrawals, look for one with fees of around 1-3% on your preferred funding method, or look for fee caps of around $30 so that you don’t get charged a crazy amount.

Inactivity Fees

Many brokerages that charge inactivity fees list those fees somewhere on their website, possibly under their terms & conditions. Unfortunately, many traders don’t take the time to look over those sections of the website or they don’t read it thoroughly, so this can be easy to miss. Inactivity fees are charged on trading accounts that haven’t had any trading activity for a certain amount of time. Some brokers begin to charge those fees after 30 days with no activity, up until the account has been reduced to $0. Others give traders a little more time, around 3-6 months before they start charging them. The exact amount of the charge can vary widely, from $0 to $100 or more, sometimes increasing with longer periods of inactivity. Inactivity fees are only charged on accounts that have a remaining balance; they will never make your account go into the negative. This is a way for brokers to wipe out any remaining balance on the account. 

Fees for Withdrawing with no Trading Activity

If you fund your trading account and then change your mind and decide to make a withdrawal (without any trading activity), be careful. Some brokerages will charge you a fee for doing this. We’ve seen fees in the $30 range, but some will charge a high percentage of the amount you originally deposited. These fees are often hidden under a broker’s terms & conditions, although more transparent brokers might list them on their main funding page. 

Maintenance Fees

Most brokers don’t charge maintenance fees because they understand that this is obviously an unnecessary charge that will anger their clients. This is basically like an unnecessary charge your home phone or internet provider might throw on your bill for no reason. The reason these fees are taken is usually described as being for “accounting” purposes, or more generically they are simply described as monthly account maintenance charges. If a broker charges maintenance fees, then it is likely that they have other hidden charges as well, so be cautious or look for another broker altogether.  

The Bottom Line

Traders should be aware that there can be hidden charges with forex brokers. Spreads and commission fees are common charges that should be expected, but if you can’t find any information about these charges on the broker’s website, it is usually a bad sign. Funding fees are also pretty typical, but transparency is important for this category. You should be provided with a complete overview of the aforementioned fees before you ever open a trading account. Then we move on to fees that are less common and often hidden in less obvious sections of a broker’s website. Inactivity fees, maintenance fees, and fees for making withdrawals with no trading activity are a few examples of these, although shady brokers might be able to come up with more options in this category. 

Be reassured that there are reputable brokerages out there that aren’t trying to scam you out of your hard-earned money, you simply need to know how to spot these things and compare all of the applicable fees for your options. Start by checking for the spread, commission, and funding charges. If all of these are detailed on the website, then read through the terms and conditions fully to check for any hidden charges. Look towards the very bottom of the broker’s website for important links or PDF files you’ll need to read and be sure to read everything you can find.

Categories
Beginners Forex Education Forex Basics

How Much Money Do You Need To Trade Forex Professionally?

How much should we invest in Forex trading? Too much, we will end up broke, too little, we won’t make anything. What is the amount of money, right enough, to start trading professionally on Forex? There are a lot of answers out there on the interwebs, and most of them are bad advice. Lines you […]

How much should we invest in Forex trading? Too much, we will end up broke, too little, we won’t make anything. What is the amount of money, right enough, to start trading professionally on Forex? There are a lot of answers out there on the interwebs, and most of them are bad advice. Lines you […]

How much should we invest in Forex trading? Too much, we will end up broke, too little, we won’t make anything. What is the amount of money, right enough, to start trading professionally on Forex? There are a lot of answers out there on the interwebs, and most of them are bad advice. Lines you are about to read, are not here to make you happy, they are here to represent the truth, without sugar-coating it. Plain straight. 95% of podcasts, YouTube videos, forums, tweets are just white hum static in the air. How do you know this isn’t? Don’t get depressive, read it to the end. There might be light at the end of this tunnel, even it is not something you were expecting.

So, how much money do we need to trade professionally? And what does it mean, professionally? That means you are trading actual money, the amounts are not important, big or small. When you hear someone presents themselves like trading professionals, take it with a grain of salt. Professionals are not kids playing with their demo accounts. Having a real trading account doesn’t make you a professional. You have to live on the money you earn by trading. Someone has to see you are good enough to hire you to trade their money.

Back to the money. Depending on a broker, the least amount of money needed would probably be $500 in the US. Globally, some might go lower than $500, even up to $1 micro account. Does 1 dollar account sound reasonable to you? Here is the part you don’t want to read. You are young, you want easy money. You heard over this thing on the internet, you dig a little, you learn how to read a chart, tinker with tools to predict prices with the RSI or Fibonacci indicators and it seems to work. And so you awe and think to yourself – I’ll use this for my trading, and get 50 to 1 dollar invested. Just imagine, it’s even better if outside of the US, a $100 for 1 invested. Millions are waiting, just repeat. And with that belief, you set yourself for failure, because the system you have set up is unreliable, works sometimes, 50% at the best. It leads you to believe you can leave your job, gives you unrealistic expectations.

Your system doesn’t work because you have never developed money management skills. A combination of confidence and undeveloped skill is deadly. For example, you trade short, and the price is long, and instead of abandoning with loss, you follow indicator with the belief it is going to straighten itself, but, it didn’t and you burn the account. This is what we are trying to avoid. Some people will follow the same patterns even if they don’t work perpetually, some will drop after only one bump. Sometimes one mistake is there to teach us and give us a better position. To succeed, confidence and motivation are both needed, and you cannot burn somebody else’s money to do it. To build those attributes think beyond those 500 dollars, see it just like a drop in an ocean. They are just a guide to help you ease trade with real money, to let yourself of emotions. You will not turn that initial deposit into anything remarkable, regardless of what internet tells you. We see a lot of scammers today, with promises of 100 pips a day. Experienced traders can confirm that the market conditions will not allow for this amount of pips to be made each day.

So what do we have to toy with now? We have tested and proven our system. How much money do we need to trade professionally? How much is enough to have good revenue and let you live by trading on Forex? Let’s play with a sum of $100000, that’s burning a hole in your pocket. You are in the top 2% of all earners in the US, globally in the 1%. That’s a really narrow percent of people. With that amount of money, what would be a good rate of return per year, on Forex? 11% per year is average. And that is already unreal for a new trader, as it takes a lot of time to get to that percentage. Compound interest over time will grow your fortune over a longer time, but as a young trader, you don’t have that luxury. So, what have experienced traders get per year? 13-14% per year return is top for very best financial advisors. A very rare and small group. Unique occurrence in the form of Warren Buffet will profit with a 20% return per year.

So at best, on $100000 you profit 20%, and that’s 20000 dollars per year before taxes. Or to bring it more into the perspective of monthly living, which is less than 1700 dollars per month. Can we go with 1700 dollars per month? Does that sound like a comfortable life, or can you even say you can make ends meet on that amount? As a professional trader, that would be all you get and if you spend it on daily living, you would be limited in investing further. So, after many years, what you have to work with is less than average yearly income, and that is if by some miracle you get a 20% return. So, that’s the direct answer to the question. Don’t despair, read the rest.

Luckily, there are companies out there, that are willing to invest in you and give you money to trade in their name. Of course, they are willing only if you prove yourself worthy, with properly setup systems and consistent results over time. But first, understand, that to master Forex trading it is necessary to suppress emotions, to be able to easily overcome losses and deal even with wins. That will start providing consistent results. Consistent results will give you an in-depth view of your system, and you will be able to fine-tune it to out give even better results.

Now, starting with demo accounts or small accounts is beneficial to smooth out the trading process, see where you are thin, and to show that you can do good trading in the long run with steady results. This is how we want to present ourselves to trading companies. When they engage you, trading companies will arrange their own tests. They will set a test period and see how you do under pressure, which is usually about 6 months. Don’t be upset by this time period, there is no other way for them to expose lesser traders that can’t maintain steady results. Constant results are hard to achieve, and that will separate a “trader” from a professional trader.

So, back to the question, how much money do you need to trade Forex professionally? Here is a more extensive answer. Not that much. There are a lot of trading firms out there, with lots of different options, and joining them can cost no more than a couple of hundreds of dollars. You just have to have the good sense to trade and be patient enough to build a good system that will attract trading firms. Then you have to be able to prove that system and stay consistent. If you want, you can also start a small account and trade in parallel with your trading firm.

Hopefully, you will see these lines as a guide, to help you save a fortune on burnt accounts, time, and unrealistic expectations. We hope, with this article, to shorten the amount of time to create good traders. Long term traders, that are not all about “easy money”, and in that way enable a dream of sustainable, comfortable living.