What is Forex commission?

Commission Definition

Commission is a charge which is levied by investment broker for making trades on trader’s behalf.

Commission amount differ per broker and there are accounts in which there is no commission charged. 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 of trading in other market will be familiar with commission. However, in forex trading there are different account types and every account type has its own features. Some account charge commission whereas some don’t.

The account which charges commission, whenever trader open 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 is 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 certain amount of fees.

In the above image highlighted red box shows the commission charges of the FBS broker.

The commission is deducted from equity of the trading account, not from balance. In order to earn profit, there are 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 right direction so that the spread amount can be covered. Suppose, the spread is of 5 pips then the movement of 5 pips in 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 along with that they offer certain type of account to trade with. As there are different terms and commission on different accounts of broker, therefore it is necessary for the traders to analyse which account type suits them the best. In order to choose the plan, account traders have to conclude themselves actually what they want. Some broker may provide the feature such as analytical tools help because of which higher spread and commission in charged. Along with that trader also have to choose the volume of the trades they want to work with, whether they want to trade with large volume with lower spread and commission in more traditional or liquid markets; or risk trading in 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 volume is important. The rule is the bigger the volume, the bigger the commission amount will be. For example, if you trade with volume 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 is no commission or less commission charges people are tended to trade with higher volume.

Conclusion

In this article we have learnt, that broker charge commission as a fee whenever a trade is opened. And charging commission is normal as it is the part of broker revenue. In exchange of the services broker provide they charge 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 differ from broker to broker. What matter here is that the trader should be aware how commission effect their trade and what to consider while choosing the broker.