2 August 2023
Forex trading is a good way to make money online, but before you start investing, it is important to understand the various costs involved. Forex commissions are similar to the fees you would pay to exchange your country's currency for a foreign currency at an exchange bureau. Trading on the foreign exchange market also has costs that novice traders should be aware of and consider before starting to trade. In this article, we will explain how fees work in Forex trading and what to look out for.
What are the types of commissions on Forex?
A forex broker provides a trader with access to a platform for the purpose of buying and selling foreign currencies for speculative purposes. For convenience and access to trading, brokers charge a certain percentage of commission. The commission rate may vary depending on the broker, the type of account you have, and the currency pair you trade. When choosing a broker, it is important to understand how your intermediary calculates commissions, as this percentage is automatically deducted from your trading capital when you place trades. Forex brokers earn money by charging a commission or spread* for each trade in exchange for executing your orders.
*Spread is the difference between the buy and sell price of a currency pair.
Not all forex brokers have the same commission structure and may charge commissions as follows:
Fixed spread - the broker quotes the buy and sell price of a currency pair, and his commission is the difference between these two prices.
Floating spread is a buy and sell price that can vary depending on market conditions. Accordingly, during a period of high volatility, the broker's commission will be much higher.
Percentage of the transaction - the broker charges a commission that is a percentage of the total value of the transaction.
Fixed commission - the broker charges a fixed amount regardless of the size and volume of the trade placed.
Some forex brokers may also have hidden fees that you should find out about in advance. These could be fees for account maintenance, payment processing for deposits or withdrawals, account inactivity, calling the broker on the phone, etc. While some forex brokers will charge all of the above fees, others may not have these fees at all. To avoid any unpleasant surprises, research everything about the fees of the broker you are interested in before opening a Forex account.