What is the commission in Forex trading? 2024 (commission vs. free commission account)

In this article, I will tell you what a commission is in Forex trading. Make sure to watch this video until the end. I will tell you the difference between a commission and a commission-free account in this video. I will also advise you on which account you should choose based on your trading style. So, let’s get straight to the point.

Commission concept in Forex

When you buy anything through amazon.com, they add their commission to it, or if you purchase anything from Walmart, their commission is built into each of their products. Why do they do that? Yes, they are both businesses, and to run a business, you have to make money through the services you provide to them.

In the same way, when you trade in the Forex market, you have to do so with the help of your broker. Your broker provides different services and allows you to trade through a smartphone. Well, when they provide you with such excellent services, it is evident that they will need money to continue their business because, after all, it is a business.

Forex broker commission is not a charity.

It is not charity, so the broker charges you fees whenever you open a trade in the Forex Mar. ket. The cost is a commission when you first set foot in Forex trading. In finding reliable and regulated brokers to open an account, you must have encountered some brokers who only offer commission or accounts with the commission.

How do brokers charge commissions?

You must have wondered how and why the broker will not charge any commission from you. This has made you think that the broker is not regulated and that they will scam you. Well, that’s not true because they won’t fool you. Regulated brokers offer a commission-free account, but there is a problem.

There are different ways in which your broker charges a commission from you. Let us understand how brokers charge commissions. There are two ways in which the broker collects commission from you.

Regular commissions

When you open a trade for the first time, regardless of buying or selling, the broker will charge you a fee, which is called a commission. It is essential to know that the commission is initially deducted from your balance, not your account. I am telling you this because it psychologically impacts how you approach the next trader. Every broker has their commission fees, which are mentioned on their website. This commission fee depends on the number of units you buy or sell. Also, the commission fees on their websites are primarily based on 100,000 units and vary from lot size to lot size. These commissions can range from 50 cents to $7, depending on the broker you use.

Commission through price differences

The moment you open a trade, whether you buy or sell, your trade is always open a few pips above or below your level. This is why you see your trade at a loss when you first open a trade, and this is because your broker charges you a small amount. From the price differences in every deal you buy or sell, this spread is the difference between the asking and the price.

So, different brokers offer you different spreads. Based on that, your commission is calculated, so when they say that they offer you a zero commission or zero commission account, they will not charge you any commission fees. Still, they will charge a commission through the spreads; usually, those accounts that do not charge commission have large spreads.

So they charge you commission through spares and ads, which is why commission calculations don’t work.

What is a suitable Forex account?

Now, which account should you choose? Is it a commission account or a commission-free account? You must know which account is correct for you and which account saves you more money because the more you save, the more money you can invest. There is something important about these accounts that you should know.

It is noted that a broker that charges you commission fees usually provides you with tight and small spreads. A broker that charges you through spreads usually has large spreads, so you should choose your account depending on your trading styles.

Suppose you are a day trader or scalper. In that case, every pip is essential to you, so you should choose a broker that charges you a commission because they usually provide you with a payout through ECN accounts with very low or small spreads. If you are a swing trader or have continued trading for weeks and months, you should use a spread-based commission calculation because the spread will not matter to you.

Forex brokers make a lot of money.

All the top stock brokers are making billions of dollars every year behind your back, and here’s how they make so much money while offering commission-free trades. Historically, brokers charge a fixed fee for each trade a user makes, and they secretly sell their users’ trading data for billions of dollars every year.

An example of how the system works is when a trader places an order to buy AAPL shares, and the broker takes that order and sells it. This is done to a company like Citadel, then Citadel buys AAPL shares and sells the shares to the trader at a higher price; Citadel makes money, the broker makes money, the buy order is executed Yours for a bad price, and high-frequency trading brokerage firms make billions a year by doing this.