Forex Brokers with Low Costs
If you are trading forex online, then you will need a forex broker to buy and sell currency pairs. These brokers will usually charge you for providing the required trading platforms and tools to place and manage your positions. With so many forex brokers to choose from, forex fees can vary across the board. Whilst there is a general consensus to the amount you would expect to pay, there are low cost forex brokers who you can save money with, especially if you are an active trader taking positions on a frequent basis.
What are the costs for trading forex?
There are a few different forex trading fees that you need to be aware of. The main costs involved are commissions, spreads and swaps. These are what you might expect from the majority of retail forex brokers whereas some can also charge platform fees, data fees, funding fees and other fees.
You should check to make sure you understand all of the applicable fees before using any trading broker. When you plan your trading strategy, you should account for all of the broker fees as they can eat into profits. This is why using a cheap forex broker is important for strategies that have small margins for profit, such forex scalping strategies.
What are forex spreads?
A forex spread is the difference between the bid price and the ask price of a currency pair, and is usually measured in pips. To calculate the spread of a currency pair, you have to work out the difference between the buy and the sell price in pips.
You can do this by subtracting the bid price from the ask price. For example, if you’re trading GBP/USD at 1.4089/1.4091, the spread is calculated as 1.4091 – 1.4089, which is 0.0002 (2 pips).
Generally speaking, a forex broker with low spreads is better. I have seen a difference in spreads between brokers cause a winning strategy turn into a losing one. If the strategy is only targeting 2 pips, a broker with a 1 pip spread would have the advantage over a broker with a 2-pip spread, all other fees considered equal.
If you are using a forex strategy that requires a certain spread at all times, you might want to consider a fixed spread forex broker. If you are looking for the lowest spreads possible, a zero spread forex broker might be worth a look.
What are forex commission fees?
The forex commission fee is charged when you enter and exit a trade. Some brokers charge per side and other per round turn (in and out). Commission fees can add up if you are day trading and buying or selling throughout the day.
The industry average commission fee at the moment I would say is around $7 per round turn, per standard lot. This means that for every 100,000 position that you take, you would pay your broker $7 in commission fees.
There are forex brokers with no commission fees that you might find useful if you plan on trading large volumes. Just keep in mind that they will usually add a mark-up to the spread in order to provide zero commission fees.
What are forex swaps?
A swap in forex refers to the interest that you either earn or pay for a trade that you keep open overnight. There are two types of swaps: Swap long (used for keeping long positions open overnight) and Swap short (used for keeping short positions open overnight).
Swap rates can be calculated using the following formula: Rollover rate = (Base currency interest rate – Quote currency interest rate) / (365 x Exchange Rate).
Forex swap fees may not matter so much if you are not holding your positions overnight. However, I have seen them take a significant chunk away from trading strategies that operate just prior to the rollover hour.
There are swap-free forex brokers but swap-free accounts are usually restricted to Islamic traders who cannot pay or receive swaps (interest) due to religious beliefs.
What is forex slippage?
Slippage is a term used in the financial world to describe the difference between the expected price of a currency pair and the actual price that your trade is executed at. This can be caused by a number of factors, including high volume or volatility in the market.
If your broker has too much negative slippage, this means that you can get worse prices than you expected which might put you at a loss. I find that ECN forex brokers that have deep liquidity pools tend to have superior execution.
I would also make sure they are a no-dealing desk forex broker to avoid any unnecessary delays that you might get through a market maker broker.
Who is the cheapest forex broker?
Thankfully, with so many low-cost forex brokers to choose from nowadays, you are not short of options. The cheapest forex brokers are those who have tight spreads, low commission fees and rapid trade execution speeds. You can see a selection of best low-cost forex brokers in the table below.
ASIC, BaFin, CFTC, DFSA, FCA, FINMA, FMA, FSA, FSCA, JFSA, MAFF, MAS, METI, NFA
$250
1974
1:200
Low-cost forex brokers pros & cons
Pros
- Save on forex trading fees
- Give your strategy an edge
- Good for scalping strategies
- Useful for active traders
- Lots of cheap forex brokers
Cons
- Might not be regulated
- Can require larger deposits
- Depends on market liquidity
Conclusion: should I use a cheap forex broker?
Yes, if you want to save on forex trading fees then using a low-cost forex broker can certainly help. However, there is much more to it than that. There is no point in using a cheap forex broker if they do not provide a high quality of service. You should consider the complete package that they offer and if it delivers value for money.
Some forex traders might need to save on trading costs more than others. For instance, if you are using forex scalping strategies then you will probably benefit more from using a cheap forex broker compared to a swing trader who is holding positions for the long term. This is because you will be trading more frequently and the costs can add up.
The same can be said for traders and investors who are placing large order sizes. The larger your position size, the more fees you will need to pay. If you are trading forex with double digit lot size these costs can quite easily go into the thousands. Therefore, it would make more sense to use a low-cost forex broker in that instance.
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