What is Forex commission?
The commission is a charge which is levied by an investment broker for making trades on the trader’s behalf.
Commission amounts differ per broker and there are accounts in which there is no commission charged. The commission depends on the asset being traded and the type of service which is offered.
This is one of the ways for brokers to earn money. Traders who have experience in trading in another market will be familiar with the commission. However, in forex trading, there are different account types and every account type has its own features. Some accounts charge commission whereas some don’t.
The account which charges a commission, whenever a trader opens a trade the first deduction that will occur is of commission, meaning commission is charged once you open any trade no matter for how long the trade is opened. This is the fees which are a way for their earning. Of course, they have to earn in order to maintain themselves in this market, and in order to do so, they charge a certain amount of fees.
In the above image highlighted red box shows the commission charges of the FBS broker.
The commission is deducted from the equity of the trading account, not from the balance. In order to earn a profit, there are a few things to be taken care of. Firstly, when you open any trade the first thing that is deducted is commission after that spread comes in order to earn profit trade has to move in the right direction so that the spread amount can be covered. Suppose, the spread is of 5 pips then the movement of 5 pips in the right direction is required in order for you to earn profit. Once the movement of the currency pair is above 5 pips then only you will start earning profit.
Choosing a broker and commission structure
Given that there are many brokers in the world that offer certain types of accounts to trade with. As there are different terms and commissions on different accounts of brokers, therefore it is necessary for the traders to analyze which account type suits them the best. In order to choose the plan, account traders have to conclude for themselves actually what they want. Some brokers may provide features such as analytical tools to help because of which higher spread and commission are charged. Along with that traders also have to choose the volume of the trades they want to work with, whether they want to trade with a large volume with a lower spread and commission in more traditional or liquid markets; or risk trading in a more volatile market where the potential of loss and gain could be greater.
How does commission vary?
The changes in commission occur when the volume of the trade is changed. This is one of the important points every trader should know because the volume is important. The rule is the bigger the volume, the bigger the commission amount will be. For example, if you trade with a volume of 0.1 and the commission on that trade is 0.5 USD then expect the commission to change as the lot size changes.
But nowadays the competition level is quite high and in order to survive broker tends to provide various offers to their clients so that they don’t leave them. That is the reason why some of the accounts don’t have any commission charges. Where there are no commission or fewer commission charges people are tended to trade with higher volume.
In this article, we have learned, that brokers charge a commission as a fee whenever a trade is opened. And charging commission is normal as it is part of broker revenue. In exchange for the services broker provide they charge a commission to serve this purpose. Commission amount is directly proportional to volume, the bigger the volume size higher the commission will be. There is nothing immoral to charge commission and it differs from broker to broker. What matter here is that the trader should be aware of how commission affects their trade and what to consider while choosing the broker.