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Monetary Market Advisors

Forex Commission vs Spread

You probably arrived here from our main Forex Brokers comparison.

Spread and Commissions are two of the most important differentiators between brokers. Here is why:

  • Spread is a commission that is implied as a percentage of the transaction. It is integrated into the exchange rate.
  • Commissions are fixed dollar values that are added for every transaction. Sometimes it is charged for every lot.

For example, you have $100 USD, and you want to buy CAD.

  • Option A – 2 pips spread. This means that 0.0002 will be added to the exchange rate. The cost will be $0.02 when trading $100. This is a very small percentage of the amount.
  • Option B – $5 commissions. This will cost you 5% of the trading amount. Which is quite expensive.

Now, take the same 2 options above, but with $10,000 leveraged at 1:50.

  • Option A – 2 pips spread. A 0.0002 will be added to the exchange rate. This will cost you $100 when trading $10,000 leveraged 1:50. As a dollar value, you will notice that it is a substantial amount.
  • Option B – $5 commission. This will cost you a negligible percentage of the total amount.

The examples above should explain why beginners and advanced traders would want to search for different trading commissions. Many brokers offer different packages that fit different types of traders.

Updated: April 7, 2017 — 4:17 am

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