Why Spreads and Commissions Matter in Forex Trading
Forex trading is a highly competitive market, with millions of traders around the world competing for profits. To be successful in this industry, traders must…
![](https://fxify.fxpig.com/wp-content/uploads/2024/02/Spreads-and-commissions-examination.jpg)
Forex trading is a highly competitive market, with millions of traders around the world competing for profits. To be successful in this industry, traders must understand how trading costs like spreads and trading commissions work and how they can have a significant impact on trading. Having a clear understanding of how these trading costs operate will help you in choosing the right forex prop firm or a broker that aligns with your trading strategies.
Key Takeaways:
- Spreads and trading commissions are primary trading costs that every forex trader should understand to optimise their trading strategies.
- Forex brokers charge trading commissions in two ways: ‘per lot per side’ or ‘per lot round turn’.
- Inflated spreads and trading commissions can erode profits, particularly for active forex traders.
- Being mindful of trading costs enhances a trader’s performance.
What are Spreads in Forex Trading?
A spread is essentially the difference between the bid (buying) and ask (selling) price of a currency pair. It is measured in pips, which is the smallest unit of a currency’s value. Take, for instance – the EUR/USD currency pair with a spread of 2 pips. This implies that if the buying price stands at 1.3000, the selling price will be 1.2998. This is the ‘cost’ of trading with forex brokers, and it can vary based on market conditions and liquidity.
What are Trading Commissions?
Trading commissions are fees forex brokers charge for executing trades on your behalf. They can be charged in two ways: ‘per lot per side’ or ‘per lot round turn’. The former charges a trading commission for each side of the trade, whereas the latter charges one flat fee for both opening and closing positions – they’re both technically the same thing. Let’s take an example: if a forex broker charges $2 per lot per side commission, it is equivalent to paying $4 per lot round-turn.
The Impact of Inflated Spreads and Commissions
Both spreads and commissions are trading costs that can eat into your profits without you even realising, especially if you’re an active forex trader.
![](https://fxify.fxpig.com/wp-content/uploads/2024/02/Spreads-and-commissions.jpg)
Picture this: Consider every trade you take charges you trading commissions of $8 per lot round-turn with an average spread of 0.9 pips.
Now, let’s break down the calculation:
- Cost Per Trade = Spreads + Commissions
- 0.9 Pips Spread = $9 Per Standard Lot
- Commissions Per Lot Round-Turn: $8
- Total Costs Per Standard Lot: $17
Imagine executing 10 trades with this price feed – that’ll cost you $170! That’s a significant amount that can easily eat away at your profits if your trading strategy is not well-capitalised.
The Impact on Forex Prop Traders
The issue with spreads and trading commissions becomes even more crucial for forex prop traders. These are traders who trade with the capital provided by a funding provider, such as FXIFY. In most cases, these forex prop firms require their traders to pass a trading assessment and prove their skills before they can access the firm’s trading capital. One of the main criteria for passing these assessments is maintaining a positive profit and loss (P&L) with minimal drawdowns. Hence, when spreads and trading commissions are inflated, it becomes considerably more challenging for forex prop traders to succeed in their evaluation stages, ultimately failing.
Learn how to calculate drawdowns in prop trading.
How FXIFY Empowers Forex Traders
At FXIFY, we understand the importance of low trading costs for traders, especially prop traders. As one of the select few prop firms backed by a broker with over a decade of industry expertise, we’re uniquely positioned to deliver unmatched trading conditions to our clients, which include:
- 0.0 spreads* on major FX pairs and Gold using Raw Spreads.
- 0 trading commissions* on FX, Gold, Metals, and Indices.
- Tailored account types and price feeds to match your trading styles.
- True market execution, ensuring your trades are executed at lightning speeds of <10ms.
See our live forex spreads in action!
![](https://fxify.fxpig.com/wp-content/uploads/2024/02/Raw-spreads-checker.jpg)
Join a Team of Forex Prop Traders at FXIFY
Start your funded trading journey with an industry-leading prop firm. Choose your funding program: One-Phase, Two-Phase, or Three-Phase – and tailor your program with our price feed options and account upgrades to match your trading strategy. Prove your skills, pass the assessment, and secure funding up to $400,000 in trading capital with a potential to earn up to 90% Performance Split* on your trading gains.
![](https://fxify.fxpig.com/wp-content/uploads/2024/02/Start-Your-FXIFY-Challenge-1024x168.jpg)
Disclaimer:
*Not all forex pairs have spreads as low as 0.0 pips
*Standardised commissions of 6$/lot round-turn apply on the Raw Spreads account type
*0 commissions on FX, Gold, Metals, and Indices apply for All-in account type only.
*Standardised commissions apply on Stocks and Crypto CFDs
*All trading instruments offered by FXIFY are traded as CFDs