What are the trading commissions and fees?

What are the trading commissions and fees?

Trading fees
Photo by @yura.selivanov


It’s important to know what trading commissions and brokerage fees you’ll have to pay as a trader. In the previous lesson, we discussed spreads specifically. Now, we’ll extend the subject to cover the spreads, commissions, swaps, and rollover/holdover charges you might have to pay. 

And you should also be aware of other additional fees that might relate to your account, such as costs associated with transferring funds in and out of your account.

What are trading commissions?

The way brokers charge for their services varies. There are those who only make their money from the financial-spread they charge for each trade while others prefer to charge trading commissions. Some might opt for a combination of both and others might add swap fees.

Whatever your broker charges to your trading account to execute trades on your behalf are called your transaction costs. It’s up to you to ensure you have these fixed and variable costs under control. Reputable brokers will list all their charges to make that calculation easier. Check these out on their website. They should also discuss and explain these fees with you. 

The previous lesson talked about spreads. Let’s look at an example of how precisely a broker might charge on a spread. Let’s say you are quoted a financial spread of 1.2 on your MT4 platform. Your broker might receive 0.2 of that 1.2 financial-spread as his profit. This profit (commission) will come from the interbank market where your trade has been placed, perhaps the ECN (electronic communication network).

Some brokers charge trading commissions, that is a small percentage charge for every trade you take on specific accounts. They might, for instance, charge 0.2% percentage of the overall value of your deal so you’d pay a commission of $20 on a $10,000 value contract.

There is also something called holdover charges, often referred to as rollovers. If you’re a swing trader, who holds trades overnight or for days and weeks, this rollover/holdover cost can have a significant impact on your bottom line.

Which commissions and fees are involved with trading?

Your costs are likely to depend on both the type of broker you deal through and the type of trading you do. 

If you spread bet or trade CFDs, then you are more likely to pay spreads. But do check carefully as some brokers in this sector will also charge the holdover fees previously mentioned and they may charge commissions.

If you’re a scalper or day trader, you are likely to execute more trades than a swing trader suggesting, in theory, that your costs will be higher. Why? Because if you take one trade a day, it’ll cost less in spread costs than taking ten trades per day. Be careful not to overtrade as this can severely impact your bottom line.

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Spread charge

Many brokers quote their prices in the form of a spread. The price to buy an asset will always be higher than the underlying market, whereas the price to sell will be below it. If you deal through a broker who charges you a spread, then you’ll see the spread quote listed as a small number between the buy and sell/bid and ask price. Some brokers charge fixed spreads and others charge variable spreads which are more in tune with market movements.

Just to recap our last lesson, the spread cost can vary depending on:

  • Liquidity. The ease with which an asset can be bought or sold. As liquidity increases, the bid-ask spread typically narrows.
  • Volume. The quantity of an asset that is traded daily. Assets with higher trading volumes tend to have tighter bid-offer spreads 
  • Volatility. A measure of the movement of prices during trading sessions. With high volatility, prices change rapidly, and the spread is usually wider.

Commission charge

If you deal shares, then brokers usually opt for charging commissions rather than a spread. But your broker might charge both a spread and a commission for specific products such as CFDs.

Some forex trading accounts come with spreads as low as 0.0 pips if you trade specific currency pairs. So, in these cases, instead of the price-spread, the broker charges a commission per trade. This commission only service tends to happen with ECN accounts and brokers offering no-dealing desk execution Traders get access to the raw spreads (or close to it), and the broker charges a small commission for every trade.

An example might be a broker who offers a premium account where you might pay a raw spread of 0.00 and then charged $25 per million worth of the currency traded on each side of the trade; when you open and close it.

Trading accounts which charge commissions typically have retrospective volume discounts applied.


Photo by @andreyyalansky19


Holdover/overnight charges

Holdover or overnight charges relate to margin trades. Good brokers will use their website to illustrate how the overnight financing rate is calculated. The cost will depend on the leverage applied per trade and the asset traded. It’s important to monitor your holdover/overnight charges as the longer a trade remains open in the account the more the holdover cost will increase.

Brokerage fees

The spread will be listed between the buy and sell buttons. If your forex broker is, say, quoting the buy price for GBP/USD of 1.3011 and a sell price of 1.3000, then the spread is 1.1. The cost of the spread relates to the price of GBP/USD at the time. 

The currency of your account is also a factor in the cost. A 1.1 spread is equivalent to 1.1 pips. The price at which your trade is executed x 1.1 will give you the spread cost.

If the broker operates on a raw spreads/commission only basis, then you won’t see the commission quoted between the buy and sell buttons. Instead you’ll have to refer to your broker’s charging terms and conditions. But it’s usually easy to work out your own costs. So if your broker charges 0.2% on the total value of your transaction, a $10,000 contract at 0.2% will cost you $20. 

This calculation will be the same if you trade shares on a stock commission basis. Note that if you buy and hold shares, you may be liable for a tax often referred to as stamp duty. You should always check all your broker’s stock trading commission charges.

Swap fees

If you keep a trade open overnight you are charged a swap fee – as the day swaps over! This is the difference in interest rates between two different currencies for the currency pair you hold open.

You should be aware that if you keep a trade open over a weekend, you could be liable for three nights of forex swap fees. Always refer to your MT4 trading platform to see what swap fees are applicable to your trade.

To illustrate this in more detail let’s use our favourite example of EUR/USD. When you buy a forex pair, technically you own the first currency, and you’re short on the second currency. That means you earn interest on the first (base currency) and pay interest on the second (counter) currency.

Because the central banks of most countries currently have national interest rates which are close to zero, the net interest rate may be a negative one. So if the interest rate set by the Federal Reserve in the USA is zero and the ECB sets a zero rate you may have to pay a small swap fee charge. However, when you buy currencies with higher rates, you may earn a net positive rate if the interest rate of your base currency is in your favour.

Suppose the EUR/USD currency pair has a swap buy rate of -0.0040 % and a swap sell rate of -0.0020%.

If you buy (go long) EUR/USD you hold Euros and you owe US Dollars. You will earn interest on the EUR position and pay interest on the USD position. If you sell (go short) EUR/USD, you are short Euros and long USD. You will pay less on your market position because USD swap rates are higher than Euro swap rates.

Trading transaction costs example

Your trading costs and transaction costs are the fixed and variable costs of doing business in the trading industry. If you want to keep these to a minimum it makes sense to trade with a broker whose spreads, commissions, holdover charges, and swap fees are clearly labelled and competitive in comparison to the industry norm. Remember to monitor the transaction cost of each trade you execute as erratic, and inconsistent charges can harm your trading plans.

A competitive cost for trading forex might be spreads consistently below or close to 1 pip for trading major currency pairs. (Obviously these spreads will alter depending on certain factors such as the volatility and volume of trading). 

But if you deal in forex when the markets open on a Sunday evening for the week, the trading will usually be very light. You’ll find the spreads will be much wider than normal on just about all currency pairs. This could be different if a significant economic event has occurred over the weekend. In these circumstances, volatility might be high, but the spreads could still be wide creating a very tricky trading environment.

To summarise, suppose you take a CFD trade on EUR/USD and you hold it for a week, and then transfer the profit back to your online bank account. You could be liable to pay the costs of 

  • Spread
  • holdover
  • Swap
  • Withdrawal

Trading fees and commissions summary

We want you to take a professional approach to your trading because that is the best way to succeed. So, please ensure you understand all the fixed and variable costs you’re likely to incur. Spreads, commissions, holdovers, swaps, transferring funds charges, all these costs will affect your bottom line profits. 

Remember your style of trading, the length of time you hold trades and trading frequency of trading  will all influence the costs you incur.

Our next lesson will cover the MetaTrader MT4 trading platform and how it works. We’ll discuss its origins, efficiency, features and benefits and how to use it to best effect to maximise your trading potential.


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