Forex Trading Costs

When trading any financial instrument, trading costs are always involved. The good news is that Forex trading costs are generally low—as long as you know what you’re doing! By following the right guidelines and understanding the fee structure in Forex, you can keep costs to a minimum.

Spread

Every time you buy or sell a currency pair, you pay the spread. In Forex, the spread is simply the difference between the buy price (ask) and the sell price (bid) of a currency pair.

• Bid price: the price at which a broker is willing to sell a currency

• Ask price: the price at which a broker is willing to buy a currency

The spread is not always 1 pip; it varies depending on market volatility and trading volume of the currency pair.

Spreads are usually low for major, frequently traded currency pairs. To minimize spread costs, stick to major pairs. Cross pairs (pairs that don’t include USD) tend to have higher spreads.

The broker collects the spread every time you close a position, regardless of whether your trade is profitable or not. This is simply the cost of trading in the Forex market.

Brokers naturally prefer active traders, because every time you enter and exit a trade, they make money.

Rollover (Swap)

If you hold a position overnight, you will either earn or pay interest, known as a rollover. The interest credited or debited depends on the currency pair you are trading. You can check with your broker to find out the exact time of day when rollover fees are applied.