Spread, Commission & Swap
Title: Spread, Commission & Swap
When trading Forex, understanding the main costs—spread, commission, and swap—is crucial for managing your profits and losses effectively. These are the ways brokers earn money and also affect your trading decisions.
Spread is the difference between the buy (ask) and sell (bid) price of a currency pair. For example, if EUR/USD has a bid of 1.1000 and an ask of 1.1002, the 2-pip difference is the spread. This cost is paid automatically when you enter a trade and is the most common way brokers make money. Lower spreads are better for traders, especially those who trade frequently.
Commission is a fixed fee charged by some brokers per trade, often used by ECN or STP brokers. It is separate from the spread and can be per lot or per trade. Traders pay commissions instead of—or in addition to—spreads, depending on the broker’s model.
Swap is the interest paid or earned for holding a position overnight. Because currencies have different interest rates, holding a long or short position can result in a positive or negative swap. For example, buying a currency with a higher interest rate than the one you sold may earn you a small credit, while the opposite will cost you.
Understanding these three costs helps traders calculate potential profits and manage risk. Ignoring them can turn even a winning strategy into a losing one. Proper planning ensures costs are minimized while trading efficiently.
