Before opening an account with a Forex broker, it is important for you to know which fees you will be paying.
There are three elements of Forex brokers’ total fees and charges: spreads, commissions, and overnight financing. You may or may not be aware of these costs. So when searching for a Forex broker, besides looking for one that will satisfy your criteria regarding security of deposit, it is worth comparing the various charges levied by each one.
The three different types of broker fees and charges will vary from broker to broker. But selecting a broker is not just a question of finding the cheapest broker, as the cheapest broker for you will vary depending upon your trading style.
The comparison of different brokers’ fees is not always as simple as it looks at first. There are two factors that complicate things. Firstly, all of the above fees may change from day to day, and vary from broker to broker. Secondly, the total of all the fees and charges that you as a trader will pay to your Forex broker will be different depending upon your style of trading and the size of your account.
In addition, there is the question of how long you intend to hold your trades. If you plan to hold most trades over several days, weeks, or even longer, the overnight financing rates might be even more important than the spreads as a factor affecting your overall profitability, especially if you intend to trade infrequently.
If you are a day trader planning to only hold trades overnight very rarely or never, then overnight financing becomes almost irrelevant. The spreads and commissions will be most important to you.
If you are trading a larger sized account, it could be more economic for you to seek a broker that charges fixed commissions at the expense of spreads.
As in most things in life, the more money you are prepared to deposit into a Forex brokerage account, the better deal you can usually get. In particular, if you have more than approximately $15,000 to deposit, you can get very competitive spreads, commissions, and overnight financing. On the other hand, if your deposit size is relatively low (for example $250), you will almost certainly find it hard to avoid paying relatively high fees of every type.
It is impossible to be certain which broker will be the least expensive until you know roughly how much you are going to deposit, which pairs you will be trading, how often you will trade, and how long on average you will be prepared to hold winning positions.
Once you are sure of this information, you can review the relevant data from each candidate broker and make some calculations. The most complex calculation concerns the overnight financing. Do not forget that the tom/next rates for a pair will vary over time. A good approach might be to get the respective overnight financing rates for a basket of currency pairs from each respective broker, and net out the average differences between the long and short rates. This is likely to give you a truer overall picture of which broker will probably provide you with superior overnight financing.
My Wealth Desire says
Very interesting information when it comes to selecting right brokers. Forex trading is very nice side hustle job to make money. Hopefully, in the near future I will try trading and I will consider all these information.
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Derek @ MoneyAhoy says
I’ve heard that you can lose a whole lot of money with forex trading in the blink of an eye. I guess some folks are good at it, but I would never touch it with a 10-foot pole. Too risky for my blood!
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Joshua @ CNA Finance says
Hey Derek, although I hate that it has to be compared this way, but forex is a lot like gambling. You can definitely lose a whole lot if you jump to the high dollar poker table and have never played a hand. On the flip side, high risk=high reward. There are ways to minimize risk in forex trading, but it’s hard to find ways to increase your profits in other investments.
Joshua @ CNA Finance recently posted…How We Saved More Than $1,000 For Our Wedding…In A Month!
Brad @ How To Save Money says
A very informative and educational post. I have always wanted to trade foreign currencies, but never quite found the time or the courage. Is it something that you do often? Do you make money at it?
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Anna says
Hi, I just stumbled upon https://EntryForex.com – they offer a very basic, but very nice looking trading interface accessible from anywhere. I liked their demo interface, but I wonder whether anyone tried to trade live with them?
independent broker dealer says
Principals-just implies that the main gatherings to an exchange are operators who effectively bear hazard by taking one side of the exchange.
There are Forex dealers who charge what’s known as a commission, in light of the spread