Forex world is full of competition, whether it is between currencies, forex traders or forex brokers. Today there are many brokers available online and most of them scream “No Fees, No Extra Charges” on their websites, banners or reviews. It is an amazing, but rather exotic offer. Trading without any strings attached would have been bliss, however in reality nothing comes for free, especially not in the investing markets. So what is really going on when it comes to forex broker’s charges?
Forex brokers are getting rewarded for their services in 3 ways:
- fixed spreads
- variable spread
- commission based on a percentage of the spread
The spread is the difference between the two prices: the bid price (the rate at which you can sell the currency) and the ask price (the rate at which you can buy the currency).
Fixed spreads sound like a very attractive offer. We all hate dealing with any kind of changes and we like to see fixed prices (especially when we buy something regularly!). The acceptable bid/ask spread for major currency pairs such as EUR/USD is 3 pips, but it is possible to find a lower option.However, in forex market fixed spreads might be less profitable. After all, it is a volatile market and you better get used to changes!
In the case of a variable spread, you can see spreads might go as low as 1.5 pips or as high as 7 pips. It all depends on the currency pair you have selected and the market volatility.
Then we have forex brokers that take commissions for each trade. This is done because your order goes to a large market maker with whom your forex broker has a partnership. In this case you get the lowest spread available in the market.
Apart from spreads and commissions, forex traders are usually charged for rollover. Rollover fee is charged by a forex broker in order to continue your order over the end of a trading day into the start of the next day.
Come to think of it, almost any “special service” provided by forex brokers will cost money. You are most likely be charged for statements, order cancellation, account transfer or telephone order. Let’s not forget the bank-related fees. Whether it is a withdrawal, deposit or a returned check, you might be subject to an extra charge.
I have also come across forex brokers that charge a monthly account maintenance fee whenever the account is inactive for more than 3 months.
Another forex brokers charge a so-called ticket fee threshold. If you trade less than minimum amount required, a fee is added to cover the administration costs.
To summarize, when it comes to forex brokers, make your choice wisely and slowly, pay attention to the smallest details in the trading policy and go over the spreads for major currencies (it is usually listed on the site and is subject to change without prior notice!) And keep in mind that there is always something to pay for. In my opinion, there is no such thing as “No Fees, No Extra Charges”. After all, forex brokers always earn a spread!
