Where Is The Commission In Forex Trading? An important aspect of trading in any type of asset, including currencies, is how much the purchase and sale of the asset will cost. One significant cost in currency trading comes from commissions on trades. Thus, it is of interest to traders to analyse and measure the types and size of commissions to help determine their costs and potential profits on each trade. Traders who have experience with other markets such as equities, futures or options will be familiar with commissions. They are frequently charged by brokers in those markets at a flat rate per trade regardless of the volume of the asset that changes hands. Depending on the broker or dealer they use, currency traders will encounter several types of commissions, including fixed commissions, variable commissions and per-trade percentage-based commissions. 1) Retrieved 16 December 2015 https://books.google.com.br/books/about/Essentials_of_Foreign_Exchange_Trading.html?id=8zTsnBYiDGkC&redir_esc=y. Spread: The Basic Cost Of A Trade. Generally, commissions in forex trading are paid in relation to what brokers and dealers call “the spread.” Currencies are traded in pairs, and currencies are typically offered on trading platforms at an “ask” price and at a “bid” price. This means that the broker or dealer will sell a currency to a trader at one price (the ask price), and buy the same currency from the trader at a different, and normally lower, price (the bid price). The difference between these two prices is known as the spread. Fixed commissions are commissions paid on a fixed spread of generally two or three “pips” between the ask price and the bid price. A pip is defined as 1/100th of one percentage point of a currency quote for most currencies, with exception of the Japanese yen, where a pip is equal to one percentage point of the currency quote. With a fixed commission, for example, if the bid and ask prices on EUR/USD are set at 1.2576/1.2578, then the trader can buy the currency at 1.2578 and sell it back to the dealer at 1.2576, which nets a gain of two pips for the dealer. The bid/ask prices of the same currency pair might move to 1.2580/82, but the dealer will charge the same two-pip difference as a fee per unit of currency bought and sold. 2) Retrieved 16 December 2015 https://books.google.com.br/books/about/Essentials_of_Foreign_Exchange_Trading.html?id=8zTsnBYiDGkC&redir_esc=y. With a variable rate commission, the spread between the ask and bid prices can change according to the demand for the currency in the market. For example, EUR/USD might appear initially with a bid/ask spread of two pips at 1.2576/1.2578. However, depending on the demand and volume traded, it could change to a spread of three pips at 1.2585/1.288. Under this model, the spread often widens when there is greater liquidity in the market, such as when there are expected news events that might provoke price movements. As for the percentage-based commission, it is a small percentage built into the wider spread. In this case, the broker takes the percentage that could amount to only a fraction of a pip. He then leaves the remainder of the spread to a larger market maker with which he’s working. This type of commission can allow a trader in some cases to pay a lower cost of perhaps only one pip to make a trade on a given currency pair. 3) Retrieved 16 December 2015 https://www.sec.gov/answers/forcurr.htm. Making Profits. The level of commission paid could end up being critical in determining how much profit or loss a trader may register on a particular trade. In all cases, the price of a currency pair will have to move above the spread/commission costs in order for the trader to post a profit on a trade. Regarding spreads, traders will encounter various situations. For example, highly traded currency pairs will generally be offered at narrower spreads. On the other hand, less common currency pairs with so-called “exotic” currencies may be offered with wider spreads. The amount of profit or loss that can be realised won’t depend on the spreads alone, however. Currency pairs with low spreads, for example, may tend to show lower volatility, and thus offer fewer opportunities for large gains or losses. At the same time, currency pairs with large spreads could show high volatility, offering more opportunities for larger gains or losses. 4) Retrieved 16 December 2015 https://books.google.com.br/books?id=0ZHrXUUK-OEC&pg=PP2&lpg=PP2&dq=FX+Trading:+A+Guide+to+Trading+Foreign+Exchange&source=bl&ots=Kjy92p1x7s&sig=TTvq4NhVFjaf8G-ZWj01I6VXKsw&hl=en&sa=X&ved=0ahUKEwj9-cGq7eLJAhXJvJAKHShNCWUQ6AEIQTAE#v=onepage&q=FX%20Trading%3A%20A%20Guide%20to%20Trading%20Foreign%20Exchange&f=false. Choosing A Broker/Dealer And Commission Structure. Given that there are different types of commissions charged among brokers and dealers, traders may find it helpful to analyse what type of trading they plan to do before choosing which type of broker or dealer to work with. Some may offer features such as analytical tools that help justify higher spreads or commission costs. Traders may also want to consider whether they prefer to work with large volumes and lower spread and commission costs in more traditional and liquid markets; or risk trading in more volatile markets where the potential for gains and losses could be greater. Any opinions, news, research, analyses, prices, other information, or links to third-party sites are provided as general market commentary and do not constitute investment advice. FXCM will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information. High risk investment notice: Trading forex/CFD's on margin carries a high level of risk and may not be suitable for all investors as you could sustain losses in excess of deposits. Leverage can work against you. Due to the certain restrictions imposed by the local law and regulation, German resident retail client(s) could sustain a total loss of deposited funds but are not subject to subsequent payment obligations beyond the deposited funds. Be aware and fully understand all risks associated with the market and trading. Prior to trading any products offered by Forex Capital Markets Limited, inclusive of all EU branches, FXCM Australia Pty. Limited. Limited, any affiliates of aforementioned firms, or other firms within the FXCM group of companies [collectively the "FXCM Group"], carefully consider your financial situation and experience level. If you decide to trade products offered by FXCM Australia Pty. Limited ("FXCM AU") (AFSL 309763), you must read and understand the Financial Services Guide, Product Disclosure Statement, and Terms of Business. The FXCM Group may provide general commentary which is not intended as investment advice and must not be construed as such. 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FXCM Markets is not regulated and not subject to the regulatory oversight that govern other FXCM Group entities, which includes but is not limited to, Financial Conduct Authority, and the Australian Securities and Investments Commission. FXCM Global Services, LLC is an operating subsidiary within the FXCM Group. FXCM Global Services, LLC is not regulated and not subject to regulatory oversight. Past Performance: Past Performance is not an indicator of future results. Copyright © 2018 Forex Capital Markets. All rights reserved. Broker commissions, fees and discounts. Brokers play a very crucial role in the selling and purchase of stocks for the clients. They earn their income through the commission splits they have with their clients. These commissions are also dependent on the quality of the services offered by the respective brokers. For example, the brokers who charge less might have limited services while those which charge more have better and personalized services. But at the same time, it's very important to investigate the rates of commissions and then choose the right broker. Types of commissions. There are basically three patterns of broker commission intake for the brokers: Fixed spread Variable spread Commission directly charged on the spread. The spread is basically the difference in prices of what the market maker sells the currency and the price at which he is ready to purchase the currency. For example, you see on your webpage, EURUSD -1.4942-1.4945. This number signifies the spread of only 3 pips. So, when it comes to fixed spread, the market vitality is ignored and the commission remains strictly fixed. On the other hand, the variable pip is dependent on the current currency status. The broker which takes the commission based on the spread would include pips of value 1.5 to 5. Earning of brokers. Here's the revelation of how much the brokers, which handle the loans earn. For example, the vale of the loan amount is $1,000,000. The origination points in this case will be $30,000. Let's say, the split decided comes to $15,000. Thus, the commission of the broker happens to be $15,000. Moreover, the California brokers end up making 18 million dollars per year just through commissions. Lately, the broker's commission and fees in China has witnessed a drop of 39.14% in the market. This fall has been the first drastic one in the past nine months. Its one of the effects of the slumping of the forex markets of the country. Earlier, the total income from the commission and fees of the brokers was 79.92 billion Yuan but now this figure had dropped to 131.32 billion. The earning has been affected as now less people are coming forward for buying stocks, mutual funds, options and other services of the brokerage firms. The volume of trade is thereby decreasing. Discount broker and brokerage : An individual or company, who executes trade in lower prices then full services prices is called Discount Broker . And the financial advice and market research, which is provided to their customers in less prices rather than full prices is called Discount brokerage . It means entire financial services for buying and selling trades, which is provided by brokers in less prices then full services. Some real time instances. Brokers like CIBC Investor's edge charge $25 dollars as commission if more than 1000 shares have to be traded. These are for the online market orders. While turning to the offline market orders, the company charges 28.5% commission for the same trading. Their trade package is about 50 equity shares on which they charge the 6.95% commission. Other brokerage firms like BMO InvestorLine have different flat and regular rates for trading purposes. The other famous brokers in Canada are Credential direct, Disant, HSBC InvestDirect, Questrade, TradeFreedom and Qtrade. Which broker to select on which commission? Eventually, the most important question strikes? How to select the right forex broker for yourself? You should start by knowing the spreads so that the idea of the charges gets cleared. Smaller spreads have better profits for the brokers. Most of the forex brokers prefer trading off between the services and spreads to calculate the commissions. It's also very important to acknowledge the margin terms of the forex traders and brokers. You should inquire about the broker's policies, the account balances, the respective interest payments and currencies in which the trading would be executed. Finally brokers are not your friends or enemies. They are present only for business reasons. It hardly matters to them, how much trading success you achieve. Their job gets over with the commission they receive. S, its very important to make the right choice of the brokers to serve you in the longer run.