Forex commissions: How the brokers get paid

Forex commissions:  The foreign exchange market – Forex market registers an average of $4 trillion in daily transactions every day; which allows for high liquidity. This market never stops and is decentralized.


Trading in Forex can be profitable, making it a good way to make some extra income.

Since all transactions are performed through a broker or a brokerage firm it is good to know how the structure for Forex commissions is set up.
 

Fixed Forex Spread
 

This is when the difference between ASK and BID is kept constant; meaning the spread will not change depending on the market conditions. That way you always know exactly how much the spread is on each transaction you make and you just have to give a certain amount to your broker.  With a fixed spread broker, the spreads are always the same.
 

Variable Spreads
 

The spread will fluctuate in correlation with the market conditions. When the market is in a time of inactivity the spread can be low, approximately 1 -3 pips. When the market is volatile the spread can be very high with 40 to 50 PIPs. A bigger spread can increase uncertainty to trade and creating a strategy can be more difficult. 
In this case, depending on the currency pair being traded and the volatility in the market, the amount of PIPs that you give to the broker will always change.

 

Commission Brokers
 

Most brokerage firms don’t charge commissions; instead, they get compensation from the bid-ask spread but some other online brokerages use a Forex commissions structure.  The commission is a percentage of the spread of each trade.
Before choosing any broker and any
Forex commissions structures it is a good idea to get different demo accounts and try different methods. Usually brokers show detailed information about how they are paid. You can do a simple comparison in the commission structure of the broker and choose the best option for you.
Forex commissions’ structures are not the only factor when choosing your broker, but it is something to consider before making a decision. 

 

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