How the Forex Broker earns money from the spread?
Financing of your trading position: The swap for leveraged forex
Conclusion: The fees are very low in Forex Trading
Would you like to know what Forex Trading fees may apply? Then you have come to the right place.We show you from our experiences the costs, which can come up to you and describe to you, why these results to you. In addition, we will show you options for how you can trade most cost-effectively.
These costs and fees will be discussed in more detail in the following texts.
TheForex Trading Brokerdetermines the fees that a trader must pay when opening a position. There are cheap and expensive providers. The costs have a decisive effect on a traders profits. The cheaper the fees are, the higher your profit will logically be.
In many cases, 2 different account models are offered. The only difference here is how theForex Brokerearns his money. A distinction is made between a spread and a commission account. From my experience, the commission account is much cheaper and offers more advantages.
You pay an additional spread when a position is opened (this may depend on the market situation).
You pay a minimum spread (often 0.1 points or less) and you pay a fixed commission per 1 lot traded (100,000 of the underlying).
Definition of the spread:The spread is a difference between the buy and sells price.
This spread can always fluctuate due to the market situation because there are not always enough buyers and sellers on one price (this rarely happens). This phenomenon is often seen with very strong price fluctuations (high volatility). TheForex Brokeralso adds a spread to the market spread to earn money.
In principle, the trader thus gets an execution on a worse price in the market. The difference between the order opening and the current market price is the brokers profit.
SomeForex Brokersoffer the commission model for Forex Trading. First of all, I have to say from my experience that a commission account is always cheaper after my test. Instead of an additional spread, you get the direct market spread for your order execution. The forex provider now charges a commission per lot traded.
The size 1 lot describes 100,000 units of the underlying of the forex pair. For example, in the EUR/USD 1 lot exactly would be 100.000€. A fixed commission is charged depending on the trading volume. The average value is between 5$ and 10$ per 1 lot traded. If you trade a smaller size than 1 lot then the commission is of course also smaller.
The commission is a fixed amount and depends on the trading volume
Traders do not pay an additional spread but the commission
Commission based account models are the cheapest accounts
Financing of your trading position: The swap for leveraged forex
The swap, also known as an interest rate swap, is incurred when trading in leveraged derivatives. It can also be described as the financing fee for a position. Forex trading is carried out with a lever and the trader borrows money from theForex Brokerfor his position. This, in turn, borrows the money from a bank and lends the money to you at higher interest rates.
The difference in interest is the brokers profit. The position is therefore financed. This fee only applies to longer-term positions that are held overnight. The amount of the swap depends on the current interest rates of the currency pair and is also dependent on the broker. The swap usually occurs after the market closes at 23:00 hrs.
Advantage: The swap can be positive in Forex Trading
The swap can also be positive. For example, trade the EUR/USD with a short position, invest in the USD and sell the Euro. Interest rates in USD are much higher than in EUR. So you even get one credit per day. This is also called carry trade.
The interest rate of the EURO is 0% and the interest rate in the USD. Now you buy the USD and sell the EUR. This means short the currency pair EUR/USD. Now there is a huge difference between these 2 interest rates and you borrow money for the position. You get credited with the interest difference to your trading account.
The swap occurs because Forex Trading is leveraged
The fee is only for positions which are opened overnight
The swap depending on the Forex Broker and the interest rates
A goodForex Brokeris essential for success in trading. When making your choice, you should make sure that the provider is officially regulated, has good support and offers good conditions for trading.
In the table below you will find our topForex Brokers, which are self-tested. They are the best and cheapest on the market. With over 7 years of experience in Forex Trading, we have compared a total of hundreds of providers.BDSwissTickmill, andXMhas the best Forex Trading conditions in the world. You can already trade from 0.0 pips spread and pay a maximum commission of 2$.
In our experience, manyForex Brokersdo not charge these fees in order to gain a market advantage over other providers. However, it often happens that there are account maintenance fees for inactivity. If the trader has not opened a position after up to 3 12 months, a fee of up to 50€ may apply. This is however dependent on the offerer.
Further costs are possible with the payment of customer money. There are usually no fees for the deposit. But also with the disbursement, many providers do not charge any fees. Should this still be the case, you can view it transparently in the button.
Conclusion: Rarely there are additional costs.
On this page, we have shown you which costs you may incur when trading. Due to the competition among online brokers, the fees have become very low, but you should still look for the cheapest providers to make bigger profits. We have again all the important points of this page for you structured:
Forex Trading fees are very important. The fees are critical for your profit and loss. So choose a trusted and cheap Forex Broker.
(78.3% of private investor accounts lose when trading CFDs)
Your capital can be endangered. Trading Forex, CFD, Binary Options, and other financial instruments carries a high risk of loss and is not suitable for all investors. The information and videos are not an investment recommendation and serve to clarify the market mechanisms. The texts on this page are not an investment recommendation.
Trading Futures and Options on Futures involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time. Past performance is not indicative of future results