Forex trading costs & fees (2024): spread & financing costs
The costs of Forex trading are not always clear because they are often indicated in technical terms. In this article, we will provide an overview of all the transaction fees you can encounter when trading Forex.
What costs do you pay for Forex trading?
- Spread: the difference between the buying and selling price of a currency pair.
- Commission: some Forex brokers charge a commission on each trade.
- Financing costs: when you hold a position, you pay a ‘swap’.
- Account fees: some brokers charge for maintaining an account.
- Withdrawal/deposit fees: some brokers charge for withdrawing & depositing money.
Do you want to invest in CFD Forex at low cost?
The costs of Forex trading vary widely for each broker. In the overview below, I share my favourite Forex brokers with you:
| Brokers | Benefits | Register |
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What is the spread in Forex?
Most brokers charge a spread for trading in Forex.
But what is the spread exactly? The spread is the difference between the buying and selling price and is the broker’s source of income. For many brokers, the spread on the EUR/USD pair is 0.0002 per traded unit. You can calculate the spread by subtracting the purchase price (for example, 1.3190) from the selling price (for example, 1.3188).
This is the price you pay per traded currency unit. For example, if you open a buying position EUR/USD of 10,000, you pay a total spread of 10,000 X 0.0002 cents = 2 euros. In this case, when you open the position, you start with a loss of 2 euros. The exact spread may vary by broker.
Remember that you also pay a spread to the broker when closing the position!
Commissions in Forex
Some brokers charge a fixed commission in addition to a spread when you invest in Forex. For example, you pay a fixed amount of €2 for each trade.
This is especially unattractive for investors who trade with small amounts. If you want to open a Forex position with €100, you would pay 2% in transaction fees in this example. However, with a spread of 0.0002, you would only pay €0.02, which is a factor of 100 lower.
Therefore, carefully research how much your Forex broker charges and whether fixed commissions are also charged.
Financing costs in Forex trading
Finally, there are also financing costs involved in Forex trading. These costs are also known as swaps.
With Forex brokers, you trade with leverage, where the broker contributes the largest part of the investment amount. You then pay a financing interest daily on the total value of the position.
You can calculate the financing costs for each currency pair you trade, and the amount you pay per day is the percentage/365 multiplied by the total position value at opening. Note that you pay this financing rate double on weekends, since investment positions often cannot be closed over the weekend.
It is also important to understand how leverage works. You pay financing costs over the entire amount of your trade, not just your investment. For example, if you use $1,000 with a leverage of 1:30, you will pay financing costs on $30,000.
Example
Let me explain this with an example. We had opened a position of 10,000 EUR/USD. At a broker, the financing interest on this currency pair is %0.0075 per day. So, in total, you would pay 0.0075% x 10,000 = €0.75 per day. Thus, in Forex trading, it is mainly attractive to invest on the short to medium term (1 day – 1 year).
Your costs for the year would be 365 x €0.75 = €273.50. When using a leverage of 1:30 with an investment of €333, you would pay 80% in financing costs on your investment in that year.
Trading Example: Costs in Forex Trading
Let’s include the transaction costs in the overall picture. Suppose you opened a position of 10,000 EUR/USD, and the price rises from 1.3192 to 1.3341. In this case, you achieved a price increase of 0.0149 per invested euro, which amounts to a total profit of 10,000 x 0.0149 = 149 euros. You closed this position after five days.
You then paid a spread of 2 euros and five times the financing costs of 0.75, which amounts to a total of €3.75. The total costs of this investment are thus €5.75, which is 5.75/10,000 x 100 = 0.0575 percent! If you use a leverage of 1:30, your transaction costs will be 0.0575 x 30 = 1.73% of your investment.
Note that your investment position can also be loss-making. You then pay the transaction costs on top of the loss you make with your investment position.
Watch out for additional costs
We have discussed the costs you pay when trading in Forex with a broker. Always study whether the broker charges any other fees before opening an account.
For example, some brokers charge a fee when you don’t use the investment account for a while. There are also brokers that charge fees for withdrawing money or for viewing current costs. It is certainly worthwhile to compare brokers in terms of costs: anything you don’t lose in costs can be considered extra returns.
Conversion costs: costs for converting money
At some brokers, you cannot maintain an account in your currency. You often pay transaction fees for changing your currency to the currency that is used within the trading platform.
Variable costs
At many brokers, the spread is now variable or dynamic. This means that the spread can widen when there is a lack of liquidity, which increases the transaction costs. Especially for exotic currency pairs that are traded less frequently, transaction costs can suddenly increase significantly.
Important: leverage increases costs
It is also important to remember that leverage increases costs. When you open a larger position, you pay the spread and financing costs on this larger amount. This can cause the cost percentage to increase in relation to your investment.
The same applies, of course, to your potential profit and loss. If you had opened the position without leverage, you would have paid a similar amount in transaction costs. However, your transaction amount would be lower in relation to your investment.
When investing €10,000 in Forex and paying €10 in transaction costs, your transaction costs are 0.1%. If you open the same investment with leverage and €1,000, your transaction costs are 1%, but they still amount to €10.
Broker determines the costs
The Forex broker you choose determines how much costs are charged. There is no fixed cost percentage within the market. Some brokers are much pricier than other brokers. It is therefore certainly recommended to compare the different brokers with each other.
Is investing in Forex cheap?
Investing in Forex is affordable when we look at the costs you pay on an individual position. You pay less on a Forex position than when you buy a physical share from a broker.
However, we cannot call trading in Forex cheap, since Forex traders typically open many positions. When you open dozens of positions, transaction costs quickly add up.
The financing interest rate also means that investing in Forex is not necessarily cheap. However, if you are good at Forex trading, the benefits can outweigh the costs.
Do you want to try investing in Forex without risk with a demo? You can! Use the button below to compare demos directly:
Note: Investing in Forex is risky! You can lose your entire investment.
Author
About
When I was 16, I secretly bought my first stock. Since that ‘proud moment’ I have been managing trading.info for over 10 years. It is my goal to educate people about financial freedom. After my studies business administration and psychology, I decided to put all my time in developing this website. Since I love to travel, I work from all over the world. Click here to read more about trading.info! Don’t hesitate to leave a comment under this article.
