What is Spread, Commission, and Trading Fees? (Understanding The Cost of Doing Business in Trading)

📍 The Three Main Costs of Every Trade

1️⃣ Spread – The Broker’s Built-in Fee

• The difference between the bid (sell) price and ask (buy) price.

• This is how brokers automatically make money when you enter a trade.

• Example: If EUR/USD has a bid price of 1.1050 and an ask price of 1.1052, the spread is 2 pips.

✅ What This Means For You:

• Tighter spread = lower trading costs.

• Major pairs (EUR/USD, GBP/USD) have lower spreads, making them cheaper to trade.

• Exotic pairs (USD/TRY, EUR/ZAR) have wider spreads, meaning you start off at a disadvantage.

2️⃣ Commission – The "Extra Tax" Some Brokers Charge

• A flat fee per trade (usually charged by ECN/STP brokers).

• Typically ranges between $3 to $7 per lot (per side).

✅ When Do You Pay Commission?

• If you use ECN or STP brokers, they don’t widen the spread but charge commission instead.

• Market makers usually have zero commission but widen the spread instead (they still get paid).

🛑 Hidden Trick: Some brokers say “zero commission”, but they widen the spread so much that you actually pay more per trade!

3️⃣ Swap Fees (Overnight Fees) – The Silent Account Killer

• Charged when you hold a trade overnight.

• Based on interest rate differences between two currencies.

• Example: If you buy a currency with high interest (USD) and sell one with low interest (JPY), you might earn a swap. But if it’s the opposite, you’ll pay a swap fee.

✅ How to Avoid Swap Fees:

• Use swap-free accounts (some brokers offer them).

• Day trade instead of swing trading.

📍 The Hidden Costs That Can Wipe Out Small Accounts

💀 Slippage – The “Surprise” Fee

• When price moves while your order is being processed, you get a worse price than expected.

• Common in high-volatility events like news releases.

• How to minimize? Trade during high liquidity hours and use limit orders instead of market orders.

💀 Inactivity Fees – The Broker’s Way of Stealing from You

• Some brokers charge a fee if you don’t trade for a certain period (usually 3-6 months).

• If you step away from trading for a while, withdraw your money to avoid this fee.

💀 Deposit & Withdrawal Fees – Read The Fine Print!

• Some brokers charge ridiculous fees to withdraw your own money.

• Always check broker policies before signing up.

📍 Choosing a Broker That Won’t Rob You Blind

🔎 Look for Tight Spreads & Low Commissions

• Best combination? A broker with tight spreads AND low commissions (not one or the other).

🔎 Check Their Fee Structure Before Depositing Money

• Some brokers hide fees in small print—always check.

🔎 Beware of Market Makers Who “Trade Against You”

• They profit when you lose, so they have an incentive to manipulate spreads and stop-losses.

🔑 Key Takeaway:

Trading isn’t free, and if you don’t know what you’re paying, you’re already losing. Smart traders control their costs so they keep more of their profits. Know your fees, minimize your expenses, and make sure your broker isn’t eating up your account.