The forex costs are variable, but they largely determine the actual profit. The less financing costs, spreads or order fees are charged, the more traders have a profit. We look at the specific forex costs and how they may even be avoided. Before trading forex, traders should know what costs they will face and how they can carry out a solid cost calculation in advance. Good financial management requires that fees and costs are always analyzed in relation to profits.
- Forex costs vary from broker to broker
- Trading costs consist of several components
- Hidden costs for foreign exchange trading possible
- Forex costs influence actual profit payout
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Trading costs: what does it include?
Basically, the forex costs for trading are divided into the following categories:
- Fixed costs (commissions, spreads)
- Optional costs (additional services, such as advanced charting or experts -Newsfeed)
In the Forex broker comparison it is striking that the providers structure the costs very differently. However, spreads occur with almost all brokers. Fixed order fees (STP or ECN broker) are also charged. They depend on the volume traded. Since many beginners of trading often underestimate the forex costs or cannot calculate them correctly, we would like to remedy this situation. Controlling costs and comparing them with the profits made is necessary in order to be successful in the long term with solid financial management in foreign exchange trading.
Let's look at how individual brokers deal with forex costs.
Market makers usually have no order fees at all
With market makers, there is often no order fee at all because the broker provides the prices directly. As experience shows, many brokers act according to the market maker model and earn their money with fixed spreads. Some brokers act as STP brokers at the same time. In fact, it is a mixture of ECN broker and market maker. This is often traded without a spread. For many traders, this is exactly the advantage of an STP broker; because the conditions for foreign exchange trading are particularly favorable here.
With the ECN Broker, traders also incur additional costs in addition to the spreads. An additional commission is charged through direct trading on the financial market.
Spreads as an important cost factor
Spreads are an essential part of Forex trading. The forex broker comparison shows that the forex costs vary widely. There are fixed spreads and variable spreads.
The variable spreads are very widespread. Especially when the markets are volatile, variable spreads are offered. The focus is on the particularly fast execution of the order, since the spread can change during this time. In hectic market phases, the spread can therefore deviate, even if, for example, a broker (for quiet market phases) specifies a spread of 1 pip for EUR / USD. This fact is commonly referred to as widening spreads. It is not uncommon in practice.
With these spreads, traders know what forex costs they will face. Regardless of the market situation, the spreads remain the same and are calculable. These spreads are often slightly higher than variable spreads. The reason for this is that the broker takes into account possible market fluctuations and therefore uses higher spreads.
Note: In principle, the costs of foreign exchange trading should be kept as low as possible. Why is that? Additional fees reduce profits and that's what Forex trading is all about. Traders should therefore choose the most attractive spreads when choosing a broker.
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Live Forex Trading - EURUSD, 7th Jan 2020 (Part 1)
Order fees and commission
Further Forex Costs are incurred through order fees and commissions. The order fee is often charged to the STP and ECN broker. The reason for this is that the customer orders are forwarded to connected liquidity providers or banks. These brokers therefore hardly make any money from the spread alone. The commission is calculated depending on the volume. There are also differences here, as a forex broker comparison confirms:
As the name suggests, the variable commission is calculated depending on the volume. For example, if $ 60 / million USD traded is calculated, the commission / lot will be $ 6 (1 lot = 100,000 units of base currency). The larger the volume, the higher the commission. Experience has shown that some brokers stagger the commissions depending on the trading volume. For example, commissions apply individually from a certain volume.
Some brokers also take a different approach and require fixed commissions in addition to the spread. These are calculated regardless of the order size. Fixed commissions are particularly attractive for traders with a large trading volume. On the other hand, if you trade with a small volume, you should look for brokers with variable commissions. At best, even a broker is available without additional fees or commissions.
Interest fees and swaps
Another form of Forex costs are fees that only apply under certain conditions. This includes swaps, for example. Those who hold their position overnight must expect additional costs. Here, too, the conditions vary from broker to broker. It is also crucial in which direction to trade: short or long. Each market has a specific interest rate for an overnight position. Depending on the market and the trading direction, traders can even get interest credited.
Other possible fees when trading forex
We have already listed some forex costs. In addition to the trading costs, there are other fees that can reduce the actual profit. These include, for example:
- Platform fees
- Course supply fees (e.g. real-time courses)
- Inactivity fees
- Quarterly fees
- Telephone order costs
However, experience shows that most brokers have significantly reduced the costs for traders. The reason is the increasing competition among providers. Therefore, traders usually only have to invest the mentioned trading costs. However, if you want to place an order by telephone, you still have to expect additional fees from many brokers today.
In addition, further costs may arise. These include, for example, costs for real-time courses or data and news feeds. If you base your trading strategy on global events, you often have to obtain the information from third-party data providers. Not all are chargeable, but these costs may apply. There may also be additional expenses for other services (e.g. VPS server or autochartist) as well as forex signal providers.
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Are there any hidden costs in forex trading?
Not all costs can be seen at first glance. Of course, serious brokers should always present the costs transparently, but this is not always the case. Hidden costs can be a criterion to decide for or against a broker. We look at the hidden costs that are possible:
As experience shows, some brokers charge an inactivity fee. If the account is not used for some time or a certain trading volume is not reached, an additional fee will be charged. However, this fee is usually only charged after a longer period without trading volume (for example, from twelve months).
Transaction fees also apply as an additional cost charge. Although account capitalization is usually free of charge, traders may face additional costs when paying out or selecting certain payment service providers. For example, payments with Neteller or Skrill, VISA or MasterCard and bank transfers are known for this.
These costs are not part of the direct trading costs, but must be taken into account when calculating the profit. For example, if you want to have your trade profit of 300 euros paid out and have to pay a fee of 5 percent, you will lose 15 euros. These hidden costs are particularly important with higher payout amounts.
Note: Some credit institutions charge additional costs for transactions due to the currency conversion. The broker itself has nothing to do with it. If traders want to use the bank transfer as a means of payment, they should first pay attention to their account conditions. Currency conversion is often included in the account contract.
Calculating profits against costs is important when trading Forex
Every trader should always keep an eye on the Forex costs. Foreign exchange trading is about making the highest possible profits. Many investors forget that the profit is reduced by the trading costs. In order to be able to make a solid calculation, the fees should be as calculable as possible in advance.
Select forex brokers with the lowest possible costs
There are many ways to keep the costs low. One of them is the broker comparison. Experience shows that the forex costs vary (can) with the individual providers. Therefore, traders can help control and reduce costs before the start of trading. The comparison of the individual providers is very simple and ultimately brings a lot.
Use free custody account management
Some providers still charge fees for custody account management. But the increasing competition means fewer and fewer. Custody account management is now offered free of charge by many brokers. This also saves (small) amounts, which can then help to maintain the profit. A forex broker comparison shows which providers offer free custody account management.
Use specific trading accounts
Many brokers offer their customers not just one trading account, but several models. A distinction is often made here whether the spreads are fixed or variable. These account models are often volume-dependent or require a certain minimum deposit. Those who already know their investment funds well in advance can save additional costs by choosing the right trading account.
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Costs for further training?
Basically every trader should deal with the matter before trading Forex. There are different approaches for this. One can, for example, read about it in the form of books or (free) videos. In principle, it is always advisable to invest in further training. Only traders who are constantly training and practicing understand the market and can analyze chart situations.
Save costs and take advantage of offers from the broker
However, Forex traders can often save the costs of further training. Many brokers provide free information and training material, which was often even developed by financial experts. In this way, education is free of charge and can still have the desired effect. When choosing a broker, traders should make sure that many educational offers are available (free of charge).
Seminars with financial experts
If experts share their knowledge, it may be worth gold. Who doesn't want to use inside information or the experience of long-standing Forex traders? Here, too, many brokers offer a good opportunity to save costs and at the same time to participate in the knowledge of ambitious traders. Quite a few brokers are now working with proven financial experts and even offer regular online seminars. The focus is also on 1: 1 coaching, so that traders can ask specific questions to their mentor and look for solutions together with them. If this offer is free of charge - the better
Tip: If you use a demo account with the broker and combine it with the further education offer, you can immediately implement and test what you have learned. The advantage: there is no risk of real losses.
Conclusion: Forex costs are varied and decide on final profit
There are different Forex costs, but from brokers too Brokers are variable. Spreads are part of the trading costs. They are fixed or variable and are often volume-dependent. Fixed spreads are particularly interesting for ambitious investors. Commissions and order fees are additional costs in foreign exchange trading. Commissions are mainly collected from ECN or STP brokers. If you want to save them, you should look for a broker with a market maker model, such as ETFinance. If a position is held overnight, additional costs are incurred, which are also variable. Generally, the costs determine the actual profit. Therefore, they should be as small as possible. In addition to the trading costs, there may be costs for account management or further training. Attention should also be paid to hidden costs: Such costs are charged, for example, in the event of prolonged inactivity or during transactions. It is important to check the conditions with the broker carefully to avoid unnecessary costs. A simple broker comparison is often enough to compare the costs and find particularly cheap providers. Would you like to reduce your forex costs? With our tips you can get a better overview of your costs when trading forex. Don't give away money and reduce your costs.