The cost involved in trading is one of the key considerations for any trade. Although there are various costs, such as fees and commissions, involved in other types of trading, Forex has only one type of cost for the trader; the trading cost. Forex does not have commissions paid to the brokers or it does not have any other fixed costs bared by the trader. In order to understand the trading cost in Forex, let’s first understand ‘Spreads’.

Spread is the difference between the buying (ask price) and selling (bid price) prices of a particular currency. As an example, at one time, the rate between US Dollars (USD) and Pounds (GBP) could be 1.4523, when it comes to buying the currency. The selling price of the currency, at the same time could be 1.4528. If you carefully look, there is a difference of 0.0005 between the buying and selling prices of the currency at the given time. This difference is called the ‘Spread’, and in this example, it is 5 pips. A pip is the smallest unit of the currency and represented by the fourth decimal of the price.

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According to the above example, if someone buys one currency and sells it at the same time, assuming there is no currency fluctuation, the person loses an amount of money which is equivalent to the Spread. This is the money earned by the brokers or the trading platform (Forex trade software) from the transaction. This is no commission to the brokers, rather a fee based on the transaction currencies. So in other words, the fee does not depend on the transaction volume, rather a constant defined for a pair of currencies.

If you take stock trading, the scenario is quite different. In stocks, you will be charged a broker commission based on the stock volume and you are charged twice for the same stock; a commission when buying stock and commission when selling stocks. But in Forex, you are charged a fee only when buying currencies and you are not charged anything when selling your currencies. Another reason automated Forex trade software is available, while stock trading software is not (at least not widely).

Although Forex trading is commission free in most of the cases, some brokers and trading platforms may charge a commission from corporate clients doing huge volumes. These clients do Forex transactions in millions and billions, so the brokers have defined commissions for such transactions, and may get a more favorable spread from the broker. When it comes to individual Forex brokers or small to medium scale Forex platforms, no commission is charged for Forex trades. For more information on automated Forex trade software, check out Forex MegaDroid!