Forex broker’s fees and commission guide: How they work
Trading forex offers an exclusive advantage over other types of trading: reduced fees and commissions.
This is due to the fact that most fx brokers charge a variable commission on the spread rather than charging fixed or percentage fees on the value of the trade.
They can also charge a fixed commission per trade, though this is less common.
Confused about what all this means?
Don’t worry, in this article, we’ll explain exactly how forex brokerage commissions work as well as giving you a rundown of the fees charged by the most popular brokers in the market.
How do Forex broker’s fees and commissions work?
At any given time, there is a bid and an ask price. These represent the price at which you can sell and buy a currency pair, respectively.
The most common way used by brokers to make money is to charge a percentage of this difference, known as the spread, for every trade you make.
Here’s an example:
If the USD/GBP is trading at 0.788 – 0.789, the spread, i.e the difference between the price at which you can buy and sell a stock at any given point in time is 0.001$, or 10 pips (percentage in points- the measure usually chosen by brokers to express their fees. For more information on this measure, check out this article).
Based on this spread, the broker will take his commission. Some brokers will charge a variable spread, others will offer a fixed spread and profit the difference between their spread and the spread offered by the market.
A variable spread is offered when the broker does not want to engage in market risk. The broker simply adds a certain amount to the market spread, allowing the final spread available to the customer to fluctuate with the market. For the trader, this accounts for an extra variable to take into account when trading.
If the broker offers a fixed spread, he will guarantee a certain spread for any given currency pair, essentially betting that the market spread will, on average, be lower than the broker offered spread. He will then profit the difference between the broker spread and the market spread. This allows the trader to buy and sell consistently at the same cost, allowing for simpler back-testing and trading.
Forex brokers also sometimes charge a fixed $ commission per 100 000 unit trade. So if you trade, for example, 100 units of a currency pair, you must multiply this commission by 0.01.
The video below illustrates nicely the practical differences between the two:
Additionally, most fx traders will choose to trade with margin, to increase their return on capital. On top of this margin, there will be an interest rate.
We won’t be focusing on margin interest rates as these aren’t direct trading costs and can be done through external providers.
Finally, some brokers will charge overnight holding costs. These are costs associated with holding a position overnight, when the market is closed, also known as rollover rates.
Fees and commissions for the most popular brokers in the market:
IG
Trading fee type: Variable Spread
Account fee: None
Inactivity fee: 12$/month after 2 years of no trades
Rollover rate: tom-next rate %
Example trade fee:
GBP/USD.
Minimum spread: 1 pip
Average Spread: 1.3 pip
If a trade for 100 GBP/USD would be executed at the minimum pip, it would cost 0.0001 * 100 = 0.01$. At the average pip it’d cost 0.013$
Saxo Bank:
Trading fee type: Fixed Spread
Account fee: None
Inactivity fee: 100$ after 6 months of no trade
Rollover rate: tom-next rate% + 0.45%
Example trade fee:
GBP/USD.
Fixed Spread: 1 pip
If a trade for 100 GBP/USD would be executed at the minimum pip, it would cost 0.0001 * 100 = 0.01$.
CMC Markets
Trading fee type: Fixed Spread
Account fee: None
Inactivity fee: 10£/month after 1 years of no trades
Rollover rate: tom-next rate % + 1%
Example trade fee:
GBP/USD.
Minimum spread: 0.9 pip
If a trade for 100 GBP/USD would be executed at the minimum pip, it would cost 0.00009 * 100 = 0.009$.
Note: Commissions are based on a spread betting account.
TD Ameritrade FX
Trading fee type: Variable Spread
Account fee: None
Inactivity fee: None
Rollover rate: tom-next rate %.
Note: Unfortunately, TDAF, does not make its currency pair quotes public. For that reason, we could not make an example trade commission.
There is no minimum spread.
FOREX.com
Note: Commissions listed below are for commission type accounts.
Trading fee type: Fixed commission- 5$ per 100 000 units traded.
Account fee: None
Inactivity fee: 15$/month after 3 months of no trades
Rollover rate: tom-next rate %.
Example trade fee:
GBP/USD.
If you buy 100 GBP/USD, this would cost 0.005$ + the current spread.
City Index
Trading fee type: Variable Spread
Account fee: None
Inactivity fee: 15$/month after 2 years of no trades.
Rollover rate: tom-next rate %.
Example trade fee:
GBP/USD.
Minimum spread: 0.9 pip
Average Spread: 1.2 pip
If a trade for 100 GBP/USD would be executed at the minimum pip, it would cost 0.00009 * 100 = 0.009$.
XTB
Trading fee type: Fixed Commission- 4$ per 100 000 units.
Account fee: None
Inactivity fee: 12$/month after 2 years of no trades
Rollover rate: tom-next rate %.
Example trade fee:
GBP/USD.
If you buy 100 GBP/USD, it would cost you (4$ * 100)/100 000= 0.004$ in fees + the current spread.
Dukascopy
Trading fee type: Variable Spread
Account fee: None
Inactivity fee: 12$/month after 2 years of no trades
Volume commission: Based on trading activity. Varies from 10$ to 35$ per million units traded.
Example trade fee:
GBP/USD.
Average Spread: 0.85 pip
If a trade for 100 GBP/USD would be executed at the minimum pip, it would cost 0.00085 * 100 = 0.085$ + the volume commission of 0.04$ based on an account equity of 5 000$ = 0.125$
FXCM
Trading fee type: Fixed Spread
Account fee: None
Inactivity fee: 50$/year after 1 year of no trades
Rollover rate: tom-next rate %.
Example trade fee:
GBP/USD.
Fixed spread: 1.8 pips
If you buy 100 GBP/USD, it would cost 0.00018 * 100 = 0.018$ in fees.
Final Thoughts
Trading forex is one of the cheapest ways of getting involved in the financial markets.
Due to these low costs and the possibility to trade on margin, the starting capital required to achieve a full-time income is much lower than for stock or bond trading.
With that in mind, we hope that this article has helped you understand broker commissions and choose a broker for your forex trading.