Forex Trading is getting popular these days and especially it is growing popular among retail traders. Easy availability of internet and more and more number of forex brokers readily available everywhere is a reason that people tend to get to try their hands at Forex trading these days. Since more people are getting online and growing trade everywhere thus makes Forex trading and internet access goes hand in hand. Even Forex brokers are advertising everywhere and thus making people go keen about Forex trading and understand its risks and benefits. Even information required to get into forex market is available over internet and one can access it anytime to research about the forex market and get to know the pros and cons f it. With more people to have access to smart phones and internet all one needs is to get online and stay updated with the information that goes around right from economics to monetary policies and much more.
Brokers make money in Forex trading through various sources which may be termed as Spreads, Trading and Commissions and one need to understand them in detail prior to getting into dealing in Forex trades. Forex brokers have multiple revenue resources depending upon the way Forex business is organised and it is explained here so as to make it easy for individuals who wish to get into forex trading. After all it is always a question in mind as to the cost of trading Forex or how much do forex brokers charge.
The following are the multiple sources of revenue for a Forex broker
Spreads: represent the difference between the ask and the bid price and this is different for every currency pair. A trader actually sees two prices the first price known as bid, is the sell price and the second visible price is known as buy price also known as the offer. The different between this sell and buy price is known as the spread. Spreads are also of two types Variable and Fixed spreads depending on the market you are willing to trade. While Fixed spreads do not change and can be offered for a defined period of day trading or may be fixed for trading hours. Variable spreads on the other hand may fluctuate throughout trading day depending upon different factors for example market volatility or underlying liquidity.
Trading: Forex brokers create market for its customers and can trade in the opposite direction when compared to its client’s trade and in this scenario chances to succeed are 80% in favour of the broker.
Commission: Forex broker charges a commission for every transaction and is deducted at the opening time of the trade it does not matter how long the trade is being kept open. A forex broker is a trader’s gate way to the forex trading as it gives access to the interbank liquidity market. A broker charges its commission for the trade and it is deducted from the equity of a trading account and not from the actual balance. Thus from the moment a trading position is open the first thing that’s gets deducted from the trading account is the commission or the broker charges. The commission is different based on the trading account opened and the volume of the trade done by the trader.
Financing Fee: is the fee that a trader is required to pay just to hold a position overnight. The financing fee is automatically applied to your account daily that you hold an open position even in weekends.
Back to base/Conversion charges: automatically convert any realised profits and losses, adjustments, fees and charges that are in another currency, back to the base currency prior to applying into your account.
In addition to the above there are many other charges such as inactivity fees, borrowing costs, dividend adjustments and many more applied to a forex trading account depending upon the type of account you open and your forex broker. Thus it is advised to do a proper research and study the market and then choose the broker wisely and open the account which is best for the forex trading that you wish to do.