What is commission? Commission in trading?

If you are a forex trader, you have certainly heard the term commission or commission fee. So What is commission? What types of commissions are there in forex trading? Let’s learn details within the following article with Learn Forex Trading

What is Commission in forex trading?

What type of commission is a commission that many traders are interested in? Let’s learn Forex Self-Learning through the content below.

What is Commission

Commission is a fee that a broker collects from traders when they open or close a trading position in the forex market. The commission is usually calculated at a certain rate per trading lot. It can be mentioned as 5 USD/lot, 10 USD/lot, or 15 USD/lot. Commissions can be calculated differently depending on each forex broker.

Characteristics of commission fees when trading forex

Commission fees when trading forex have the following characteristics:

• Commission fees are usually applied to ECN or STP accounts. These are account types where the broker connects directly with a liquidity provider to provide traders with the best prices and execute trades quickly. Therefore, traders need to understand clearly what is ctraderto trade effectively.
• Commission fees are usually calculated one way. This means you only pay fees when you open a trading position, not when you close it. However, some forex brokers charge two-way commissions.
• Commissions are usually charged in the base currency of the currency pair you trade. For example, if you trade the EUR/USD pair, the commission will be charged in EUR. If you trade the USD/JPY pair, the commission will be charged in USD. This means that the commission fee will vary according to the exchange rate of the base currency.

See more: What is a trader that becomes successful?

Common commission calculation methods of Forex exchanges

The common commission calculation method of forex exchanges is as follows:

Commission = Number of trading lots x Commission/lot x Exchange rate of base currency

For example, you open a position to buy 2 lots of EUR/USD at 1.2, and your forex broker charges a commission of 10 USD/lot. The commission fee you have to pay is:

Commission = 2 x 10 x 1.2 = 24 USD

If you close that position at 1.21, and your forex broker charges a two-way commission, the additional commission you have to pay is:

Commission = 2 x 10 x 1.2100 = 24.2 USD

The total commission you have to pay for this transaction is:

Commission = 24 + 24.2 = 48.2 USD

Common fees when dealing with What Is Commission

In addition to commission fees, when trading forex, you also have to pay several other fees, such as:

• Spread fee: The difference between the buying price/selling price of a currency pair. Spread fees can be fixed or fluctuating depending on each forex exchange and each transaction time.
• Swap fee: This is the fee you pay or receive when you hold a trading position overnight. Swap fees are calculated based on the difference in interest rates of the two countries issuing the two currencies you trade.
• Withdrawal Fee: This is the fee that you pay when you withdraw money from your trading account. Withdrawal fees may be charged at a certain percentage of the withdrawal amount. Or a flat fee depending on the withdrawal method you choose.

Fixed trading commission fee

A fixed trading commission is a type of fee where the broker charges a certain fee per trading lot, regardless of the transaction value or market fluctuations. Fixed trading commissions usually apply to ECN or STP accounts.

Fixed trading commissions have the following advantages and disadvantages:

• Advantages: Fixed trading commissions help you easily calculate trading costs before making them. You can also take advantage of low spreads to optimize profits.
• Cons: Fixed trading commissions can increase your trading costs if you trade large lots or high-value currency pairs. You may also lose your advantage when trading highly volatile markets, as commission fees do not vary with trade value.

Flexible commission fees

A flexible commission fee is a type of fee where the broker charges a fee depending on the value of your transaction. Traders are charged a percentage of the transaction amount. Flexible commission fees are often applied to VIP or Premium accounts because these account types have extremely low or zero spread fees.

Flexible commission fees have the following advantages and disadvantages:

• Advantages: Flexible commission fees help you save on trading costs when you trade with small lots or with low-value currency pairs. You can also take advantage of extremely low or zero spreads to optimize profits.
• Cons: Flexible commissions can increase your trading costs if you trade large lots or high-value currency pairs. You may also lose your advantage when trading markets with low volatility, as commission fees will increase with the value of the trade.

  

How to trade forex with 0 commission

If you want to trade forex with 0 commission, you can choose one of the following ways.

Reasons why brokers don’t charge What is commission

You may wonder if there are forex brokers that do not charge commissions. Thereby, where do they make money to maintain their business? The answer is, forex brokers that do not charge commissions usually collect fees from traders in the following ways:

• Charge high spread fees. This is the most common way because spread fees are an unavoidable fee when trading forex.
• Charge high swap fees. This is another way that commission-free forex brokers can charge traders, by setting higher swap fees than other forex brokers, to compensate for the commissions they do not charge.
• High withdrawal fees. High withdrawal fees may affect your rights, as you will have to lose part of your funds when you withdraw from your trading account.

Note other broker fees

In addition to commission fees, spread fees, and swap fees, when trading forex, you also have to pay attention to other broker fees, such as:

• Account maintenance fee: This is a fee that the broker collects from you when you have no trading activity for a certain period. Account maintenance fees may be charged as a flat fee per month.
• Currency conversion fee: This is the fee that the broker charges you when you deposit or withdraw money from your trading account in a currency other than the currency in which you registered your account.
• Telephone transaction fee: This is the fee that the broker collects from you when you make a transaction over the phone. The reason is instead of going through an online trading platform.

See more: Registering XM broker account on the phone

Things traders need to keep in mind when trading with What is commission

When trading with commissions, traders need to note the following:

• Compare different forex brokers in terms of commissions, spreads, swaps, withdrawal fees, and more. From there, choose a forex broker that suits your trading strategy and budget. You should carefully learn about the terms and conditions of each forex broker. To avoid unwanted risks and surprises.
• Calculate transaction costs before making a transaction. Thereby evaluating the profitability and risks of the transaction. You should use trading fee calculators available on your broker’s trading platform, or websites specializing in forex.
• Take advantage of commission reimbursement programs and customer referral programs. Or other broker promotions. Thereby, reducing transaction costs and increasing your trading capital.
• In addition, traders should combine learning with other trading strategies such as hedging, What is scalp? Thereby, you can minimize risks and maximize profits.

  

So the above article, Learn Forex Trading has introduced you to What is commission.  This is a fee that brokers collect from traders when they trade forex. Commissions can affect your trading costs and profits. You should compare different forex brokers in terms of commissions and other fees to choose the right one.

FAQs

What is Commission in forex trading?

Commission is a fee that a broker collects from traders when they open or close a trading position in the forex market.

What fees are there besides the commission?

In addition to commission fees, when trading forex. Traders also have to bear some other fees such as spread fees, swap fees, and withdrawal fees.

How to trade forex with 0 commission?

Traders can trade forex with zero commission by choosing an exchange that does not charge commission fees. However, traders need to pay attention to the fees of the provider.