Forex Broker Commissions
Most forex brokers do not charge direct commissions for currency trading transactions, like stock brokers charge for stock trading. Forex Brokers are compensated by revenues from their activities as currency dealers, including proceeds from buying, selling, converting and holding currencies, interest on deposited funds, and rollover fees.
Forex brokers make money from the spread of currency trades. Prices for currency trades are quoted with both a bid and ask price. The bid is the price Forex traders can sell at, and the ask is the price Forex traders can buy at. The difference between the bid and ask price is called the spread.
If EUR/USD were quoted with a bid price of $1.3013 and an ask price of $1.3017, then the spread is $0.0004. If you wished to buy this currency pair, you would have to pay $1.3017 USD for 1.0000 Euro. If you wanted to turn around and sell the currency pair, before the quoted price had changed, you would get back $1.3013 USD for 1.0000 Euro, essentially paying the spread of 0.0004 to the Forex dealer who completed the transactions for you. Looking at this on a percentage basis, the cost is very small on a comparative basis. For this example, it is about 0.03%.
Each minimum increment in a currency transaction is referred to as a “pip”. In the case just cited, 1 pip is 0.0001. The spread in this example is 4 pips. In terms of dollars, for a forex contract of $100,000, this transaction would cost $40 ($100,000 x 0.0004). Some Forex brokers may advertise a spread of 3 pips on some currency pairs, ranging up to five pips on other currency pairs. In forex trading, the tighter the spread is, the lower the transaction costs are for the trader. All other things being equal, lower transaction costs translate into larger profits for the trader.
When you are analyzing potential option positions, it
helps to have a computer program like Option-Aid that
swiftly calculates volatility impacts, probabilities,
statistics, and other parameters of interest. These
programs can pay for themselves with the first trade that
they help you with.
Get FREE Option Tips
The Option Trading Tips Newsletter is published by MindXpansion, the developers of Option-Aid. This newsletter gives you information for maximizing your profits in options trading, including option strategies and market indicators. Fill in the following information to subscribe to this FREE service.
| Privacy Policy | Disclaimer | Resources |
|
