Forex Trading Fees: What You Need to Know Before You Start Trading

Have you ever wondered how much it costs to trade forex? Answering this seemingly straightforward question is slightly more complicated than many novice forex traders think. Indeed, it takes more than subtracting your losses from earnings to calculate the outcome of your portfolio.

If you want to calculate the exact cost of your trading, you also need to add forex brokerage fees into the equation. And before you ask, no, there’s no way to avoid them. Every forex broker charges its traders fees in one form or another. What you can do is find a broker with the most trader-friendly fees. Before you do that, though, a good idea is to learn as much as possible about the common forex trading fees.

And that is precisely what we’ll discuss today. In the following guide, we’ll explain:

• what are the most common types of forex trading fees;
• what are the additional, non-trading fees charged by forex brokers;
• how much it costs to trade forex;
• whether forex brokers charge any hidden fees;
• and if all forex brokers charge the same costs.

Forex Trading Fees

Essentially, forex fees divide into direct trading and non-trading fees. Forex trading fees usually apply to every performed trade (with several exceptions). The most common forex trading fees include spreads, commissions, and overnight fees. Let’s discuss them in more detail.

Spreads

Spreads are the most commonly forex-trading associated costs. But what is a spread in forex? In simple terms, the spread is the difference between bid-ask prices. Spreads are expressed by pips, which stand for “percentage in point.” One pip corresponds to a 0.0001 change on the forex pair, and the more the asset pair is treated, the lower it will be.

How exactly do spreads in forex work? To illustrate it, suppose we want to open a long position (buy) on the EUR/USD currency pair at the price of 1.0802/1.0709. That means our “buy” price is 1.0802, whereas the “sell” price is 1.0709. That means the broker will charge us 3 pips for opening a long position.

If the situation were reversed, meaning we would want to open a short position (sell), the broker would fill our trade at the “sell” price of 1.0709. However, once we exit the position, we’d still need to pay the 3-pip spread, as exiting means buying back the short position.

Long story short, the spread is not a cost a trader can omit. That is why you must always pay attention to how high the spread is when making a trading decision. Generally, the lower the pip, the better for a trader.

In general, forex brokers can charge traders three primary types of spreads – raw, variable, and fixed spreads.

Raw spreads are the natural market spreads brokers offer without a mark-up. These spreads are usually very close to zero pips, which is the reason why brokers who offer them are often called “zero spread brokers.” The lack of mark-up, however, usually means that “zero spreads” brokers charge fixed commissions on trades.

Variable spreads, also called floating spreads, fluctuate around a value set by a broker. They often include a mark-up a broker charges, which “artificially” increases the spread.

Fixed spreads remain at the same (fixed) value established by the broker. The industry average for fixed spreads is usually around 1 pip, although it can be higher or lower depending on the broker.

Commissions

Although commissions aren’t as common as they used to be, some brokers still charge traders commission fees. Commissions work similarly to spreads, where a broker charges a commission per lot (per trade). If your chosen broker charges a commission, your yield from a transaction must cover the cost of the commission for you to make a profit.

There are two primary types of commissions in forex – fixed fee and relative fee:

• Fixed fee is when a broker charges a fixed sum of money, regardless of the size and volume of the trade;
• Relative fee is the most common way of calculating the broker’s commission; essentially, the commission will depend on the size of the trade, where the higher the trading volume, the higher the commission fee’s value.

Forex brokers often charge commissions with very tight spreads. Usually, a commission fee applies to ECN accounts, which give traders access to the forex market without a broker acting as a counterparty. Such accounts offer raw spreads, very close to 0 pips. To make money, brokers then apply commissions per transaction.

Overnight Fees

Another forex cost to keep in mind is the overnight rollover. These are charged when a trader holds the position overnight, as every currency, either bought or sold, has its overnight interest rate attached to it. The difference between the two interest rates is the cost of holding your trade overnight.

The rollover is percentage-based. For instance, suppose that you open the long position on the GBP/USD currency pair. Your rollover fee will then depend on the difference between the UK and US interest rates. So, for example, if the UK interest rate stands at 4% and the US one is 3%, you would receive a payment to cover the 1% difference to hold the trade overnight.

That’s because you’re buying the currency from the UK, which has a higher interest rate. If you were selling instead of buying, you’d need to pay that 1% difference.

Now, what’s important to understand is that overnight rates aren’t determined by the broker but by the Interbank.

Forex Non-Trading Fees

Besides direct trading fees, many forex brokers also charge additional indirect trading costs. Such fees are charged by trade but rather for essential services, such as deposits, withdrawals, currency conversions, and account administration. Many brokers also charge inactivity fees. Let’s go through them one by one.

Deposit and Withdrawal Fees

These are self-explanatory. Essentially, some forex brokers charge additional fees when placing a deposit or withdrawing funds. However, these are usually not charged by brokers but to third-party payment processors. You should find all the information regarding potential deposit and withdrawal charges on the broker’s website.

Conversion Fees

If the broker doesn’t support your base currency, you’ll have to exchange it for one of the supported currencies. For example, suppose you’re from Poland, but the forex broker you use doesn’t allow trading in PLN. If so, you will have to exchange PLN for, let’s say, USD before you can start trading. In such a case, you will have to pay a currency conversion fee, which is typically 1% of the purchase price.

Inactivity Fee

One of the most hated fees charged by numerous forex brokers is the inactivity fee. Essentially, if a trader doesn’t perform any trades using their account for a specified period, e.g., six months or a full year, a broker will charge an inactivity fee. These vary between brokers but usually aren’t overly high. Many brokers also opt out of charging inactivity fees. However, it’s still a common practice among many forex brokers, so be sure to keep that in mind when creating your trading account.

Administration Fees (Islamic Accounts)

Since Islamic trading accounts don’t include swap commissions, brokers charge additional account administration fees. These work similarly to fees banks charge when administering Islamic finance accounts. These fees will vary between brokers, so be sure to understand how much a broker will charge when setting up an Islamic account.

Additional Service Fees

Some forex brokers offer their clients premium services, such as advanced trading and research tools, guaranteed stop loss, or dedicated account management. These services aren’t free and usually require you to pay additional fees to unlock them.

How the broker will charge such a fee and how much you can expect to pay will depend on the broker. For instance, some brokers use a subscription model, whereas others may charge higher commissions on trades.

Leverage

Although leverage isn’t a fee but a tool traders use to increase returns on their investments, it is a potential cost to have in mind when trading forex. That’s because, as tempting and advantageous as leverage in forex can be, it also increases the spreads, commissions, and rollover fees, inflating the costs per trade. That is why it’s so vital to learn how to use leverage and understand its risks before employing it for forex trades.

Do Forex Brokers Charge Hidden Fees?

No, at least not reputable ones. All the best and most renowned forex brokers are transparent about the fees and costs traders pay when using their services. If you can’t find any information regarding costs and fees, it may indicate you’re dealing with a scam broker.

As said, reputable brokers are always transparent about the charged costs, fees, spreads, commissions, etc. That is why, if you aren’t sure which forex broker to choose, InvestinGoal can help. All the brokers we recommend are licensed and regulated by the governing bodies, as well as transparent about their charged fees.

Do All Forex Brokers Charge the Same Fees?

Forex trading fees vary from one broker to another. That is why when browsing through various brokers, you’ll see that each charges different spreads and commissions. That’s because each forex broker is a separate company with different policies.

For instance, regarding spreads, various brokers use different technologies to calculate them. Some brokers will also charge commissions, whereas others add a mark-up to the spread. That is why it’s so important to carefully check how a broker operates and what trading fees it charges. It will help you calculate the costs of your forex trades and allow you to establish a more cost-efficient trading strategy.

Bottom Line: How Much Does It Cost to Trade Forex?

Calculating the cost of forex trading involves summing up all the expenses a trader must pay when performing trades. And while it’s something many novice traders underestimate, learning how much you’ll pay for your trades is vital when establishing a cost-efficient trading and capital management strategy.

However, these costs vary from one forex broker to another, with some charging higher or different fees for trades. For instance, you may feel tempted by a broker’s promise of “zero-pip spreads.” Such brokers may charge a commission per lot, though, meaning you will still need to pay an additional fee, which can even be higher than when trading via brokers who base their earnings on spread mark-ups.

Besides spreads and commissions, forex brokers also charge overnight fees, as well as indirect trading costs, such as conversion fees or inactivity fees. You should take all these fees into account when calculating your forex expenses. Only then will you be able to determine how much it actually costs to trade forex.