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3 Types of Forex Brokers Fees and Commissions Explained

spreads commissionsIn order to understand how your broker functions, it might be a good idea to go over all the possible commission structures and determine which one you are assigned to. There are all together 3 types of commission spreads that brokers adopt:

 

Variable Spread

Spread is the difference between the buy and sell price of a selected currency pair. When you trade forex, you will be presented with a quote with 2 prices for a currency pair. The spread is the difference between those two numbers (bid/ask price).

While the market experiences volatility and trend movements, the bid/ask price may change accordingly. It is normal to see a spread on majors change from 1.5 pips to 5 pips, depending on the fundamental and technical influence on the market and the participants. During the volatile periods, the market usually shows higher spreads.

Fixed Spreads

If you want to trade with a broker that doesn’t widen the spreads even during the most volatile and unpredictable trading sessions, you are looking for fixed spreads.

Fixed spreads are a great choice for traders who trade major news releases or wish to scalp. Keep in mind, however, that fixed spreads are much wider than variable spreads and in case you are not a news trader, variable spread is more profitable option for you.

The spread difference is mainly important to short-term traders whose agenda doesn’t include hundreds of pips for every trade.

 

Commission per Trade

Another variation of forex brokers earnings is the commission charge for each trade. The broker, in this case, receives orders and executes it “over the counter”.

Some traders believe that commission-only brokers are the safest choice, since they do not have a reason to manipulate prices or spreads to make traders lose. These brokers charge a fixed amount of money for each trade. 

ECN brokers belong to this category, where they also provide real-time trade execution, access to bid/ask orders, which aids traders to decide on market entry and exit points.

To summarize, nothing is for free and don’t let the front page of your broker fool you with flashy “no commissions and fees” ads. Every broker gets their share of a pie. Your job is to find whether you are charged a fair price and whether it suits your trading style, or it is time to move on to a better broker.

 

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