Forex broker commission comparison
A great number of people are eager to try their hand at Forex trading, but many of them have rather an incomplete or distorted understanding of this largest financial market. Let’s view several distinctive features of the foreign exchange market:
- Forex is quite simple: You don’t actually require a sound financial background or any kind of special training to start trading currencies in this market. It’s possible to get started even with just several bucks.
- It’s very convenient: The foreign exchange market is available round the clock, 5 days a week, and anyone can access it from a laptop or handset. It means that you can trade currencies as well as other assets anywhere you want.
- It’s lucrative: Over 5.3 trillion dollars represent its daily turnover. That’s a giant pool of money, from which you can try to take your profit if you’re smart enough. However, this business suggests high risks. Its enormous liquidity can be explained by a large number of its traders. It drives liquidity on a regular basis. Even large orders of trades are filled without any problems and also without any huge price deviations. It completely excludes the possibility of price manipulation as well as price anomalies, ensuring tighter spreads resulting in more efficient pricing. One shouldn’t worry about the extremely high volatility during closing and opening hours or frozen price ranges during the afternoon sessions. It’s another evidence of this market’s giant liquidity. Unless crucial events are anticipated, one can observe similar price patterns across the unstoppable trading.
- It’s stable: In the foreign exchange market, you are actually trading one asset against another. When the price of one asset of a currency pair dives, the other goes up, meaning you have a great chance to grasp a profit in any case.
- It suits any trading style: The foreign exchange market works round the clock, enabling anyone to trade currencies at this convenience. Undoubtedly, it’s extremely advantageous for short-term investors who are prone to taking positions over short periods – from a couple of minutes to several hours. Few traders conduct transactions during complete off-hours. Australia’s daytime turns out to be the nighttime for the East Coast of America. An American citizen can trade AUD during American business hours because little development is anticipated and prices are in a stable band during off-hours for the Australian dollar. Such investors adopt high-volume as well as low-profit trading strategies due to the fact they have small profit margins because of a lack of developments typical to Forex markets. Instead, they try earning revenue on a stable low volatility duration and offset with high volume trades. Market participants can also open long-term positions that can last from several days to a number of weeks. In this regard, Forex trading turns out to be extremely accommodating.
- Low costs: This market is known for its surprisingly low costs (commissions and brokerage). In the real sense, there aren’t any commissions here. The vast majority of brokers earn their revenue from the spreads between assets in currency pairs. So, traders shouldn’t worry about including separate brokerage fees, thus excluding an overhead. Just compare it to equity and other securities trading. In this case, the brokerage structure ranges widely, while market players should take such charges into account.
Taking a detailed glimpse at Forex commissions
As told above, unlike other exchange-driven financial markets, the foreign exchange market doesn’t have any regulatory or exchange fees. It sounds extremely tempting, doesn’t it? However, to a novice market player just willing to break into the trading business, it sounds too good to be the truth. At first sight, trading without transaction fees seems to be a positive thing. However, what may sound like a bargain to newcomers might not be the most advantageous trade available – or even a trade at all. Here below we are going to show you how to properly assess Forex broker fee structures and choose the one, which will suit you. However, if you don’t want to make a detailed Forex broker commission comparison, you can simply opt for Fxmcapital – a broker with a clear commission policy.
Three types of the commission are utilized by Forex brokers in this market. Some brokers come up with a fixed spread, while others provide a variable spread. You can come across brokers that charge a commission built around a percentage of the spread. Certainly, you’d like to know which of those solutions mentioned you should stick with.
At first glance, many consider the fixed spread to be the right choice due to the fact you would know for sure what to expect. Nevertheless, you require considering several points before you take any of them.
The spread can be defined as a difference between the cost the market maker is ready to pay you for purchasing the currency (it’s the bid price) and the price at which it’s expected to be sold to you (the ask price). Perhaps, you might have already seen examples of quotes. For example, “EURUSD: 1.4952/ 1.4955.” It shows a spread made of three pips. That’s the difference between the bid price of 1.4952 and also the ask one, which is 1.4955. When dealing with a market maker, offering you a fixed 3-pip spread, unlike the variable spread, the difference will account for pips all the time, no matter what market volatility it is at the moment.
If a Forex offers you a variable spread, then it’s going to be a spread, which will vary, ranging from just 1.5 pips to up to 5 ones. In this case, the number of pips depends on the currency pair as well as the market volatility level.
Some Forex brokers might also charge a very modest fee, just 0,2 of one pip. After this, the order obtained from you is delivered to a large market maker with whom your broker has ties. In this particular case, you can obtain an extremely tight spread, which only larger market participants could otherwise access.
Commission at different service levels
Each type of Forex commission affects your trades in its own unique way. Considering that all Forex brokers aren’t equal from the very beginning, that’s a difficult question to come up with a definite answer. Well, the reason is that there’re other crucial nuances to be considered when determining what is most beneficial for your trading account.
Not all Forex brokers are capable of making a market equally. The foreign exchange market is an over-the-counter type of market. To put that another way, the primary market makers, financial institutions naturally have ties with other banks as well as price aggregators. These ties are based on the overall capitalization as well as the creditworthiness of every participant. Exchanges or guarantors aren’t involved, except the credit agreement between every market player. Therefore, when it comes to an online market maker, the overall effectiveness of your broker will depend on its relationship with financial institutions and also how much volume the Forex broker has with them. As a rule, the higher-volume market participants boast tighter spreads.
If your market maker has a good relationship with several financial institutions and can grasp up to 12 quotes from them, then the brokerage company will be capable of passing the average ask and bid prices on to its retail clients. Even having moderately widened the spread to account for revenue, the dealer can come up with a more competitive spread on to you than rivals that aren’t capitalized enough.
If you’re dealing with a Forex broker, which can guarantee substantial liquidity at catchy spreads, it can be a nice solution for you. However, you might be eager to use a fixed pip spread being aware of the fact that you’re actually getting at-the-money executions each time you make a transaction. Slippage that takes place when your trade currencies is executed away from the cost you were actually offered, appears to be a cost, which you’re reluctant to handle.
When working with a commission broker, the likelihood to pay a modest commission is based on what else it offers. For instance, your Forex broker charges you a mild fee, just 0.2 of one pip, which amounts to $2.50- $3 per 100,000 transaction, although in return the broker offers you access to its original software platform reportedly superior to what’s offered by its counterparts. Well, here it can make sense to pay a tiny fee for this extra service.
Picking up a Forex broker
As a Forex trader, you need to take into account the whole package when deciding on a firm to trade currencies. Some brokers might come up with amazing spreads, but mediocre trading platforms. When choosing a company for Forex trading, consider the following nuances.
- What’s the capitalization of the company?
- How long has this Forex broker been in the industry?
- Who manages the company and how much experience does this chief have?
- Which and how many financial institutions does the broker have ties with?
- How much does the broker transact monthly?
- What are the broker’s liquidity guarantees based on order size?
- What’s the broker’s margin policy?
- What’s the broker’s rollover policy for holding a trading position overnight?
- Is a spread added to the rollover interest rates?
- Its trading platform: major characteristics.
- Can I utilize multiple order types?
- Are stop losses always executed at the specified price?
- Can I use your dealing desk?
- What should I do with a temporarily unavailable Internet connection? What will happen to my position in this case?
- The broker provides all the back-end office options, doesn’t it?
Even although you might guess you are getting a nice deal when shelling out funds for a variable spread, but indeed you might be sacrificing other virtues. However, there’s one certain thing – you will pay the spread anyway and your Forex broker will always derive a profit from this. In order grasp the best possible deal, you require choosing a reputable Forex broker. This company needs to be capitalized enough and it should have strong ties with the large foreign-exchange financial institutions.
You need to carefully estimate the spreads on the most popular assets. As a rule, they are going to be no more than 1.5 pips, and here a variable spread might turn out to be more affordable than a fixed one.
The cheapest way to trade currencies is to find a trustworthy market maker capable of providing the required liquidity.