The Cost of a Trade: Spreads, Commissions and Swaps in Retail Forex

Three charges, one trade

Every retail forex position carries three costs. The spread is the difference between the price the broker will buy at and the price it will sell at, and it is paid the instant the trade opens because the position starts at a loss equal to the spread. The commission, where there is one, is a fixed charge per lot, usually quoted per side or round turn, and is paid on opening and closing. The swap is the overnight financing charge or credit applied at the broker's rollover time, usually 5pm New York, for every night the position is held, and it is tripled on Wednesday to cover the weekend.

Brokers present these differently because each account type moves the cost from one line to another. A standard account has a wider spread and no commission. A raw or ECN account has a spread close to the interbank spread and charges a commission instead. A swap-free account has no overnight charge and instead widens the spread, charges an administration fee after a set number of days, or both. The total for a given trade is what matters, and it has to be worked out rather than read.

A worked example

Take one standard lot of EUR/USD, 100,000 euros, opened and closed the same day. On a standard account with an average spread of 1.0 pip the cost is 1.0 pip, which at 10 dollars a pip on a standard lot is 10 dollars. On a raw account with an average spread of 0.1 pip and a commission of 3.50 dollars a side the cost is 1 dollar of spread plus 7 dollars of commission, or 8 dollars. The raw account is cheaper, but by 2 dollars on a 100,000 euro position, and a standard account at 0.8 pips would beat it.

Hold the same position for five nights and the swap enters. If the broker's published swap on a long EUR/USD position is minus 7 dollars a night, and Wednesday counts three times, the five nights cost 49 dollars, more than the opening cost of either account type by a wide margin. A trader who compared brokers on the spread alone has compared the smallest of the three charges.

The point of the example is not the figures, which change daily, but the shape: for a day trader the spread and commission dominate and the swap is irrelevant; for anyone holding positions the swap dominates and the spread is a rounding error.

Where the swap comes from and where the markup hides

The swap reflects the interest rate differential between the two currencies. A trader long a high-yielding currency against a low-yielding one is, in principle, paid the difference; a trader on the other side pays it. The interbank forward points that embody that differential are public and quoted continuously, so the fair value of the swap is knowable.

What the broker adds to it is not. Every broker charges a markup on the swap in both directions, so that the credit paid to the long side is smaller than the charge levied on the short side, and the gap between them is revenue. The size of that gap varies from a few tenths of a pip to several pips a night, it is published only as the resulting long and short swap figures in the platform's symbol specification, and it is changed without notice. Because the swap is applied silently at rollover rather than shown on a ticket, it is the charge traders least often question and the one brokers rely on most for steady income.

Swap-free accounts do not remove the cost. A broker offering them either widens the spread on those accounts, charges a fixed administration fee after a grace period of a few days, or restricts the instruments and holding time. Reading the swap-free terms is the only way to know which.

The costs no table shows

Two costs never appear in a fee schedule. The first is the difference between the average spread a broker advertises and the spread at the moment a trader actually trades. Spreads widen at the rollover, in the Asian session on European pairs, and enormously around news releases, and a broker advertising a 0.0 pip minimum spread may be quoting 3 pips at the moment of a payroll release. The second is slippage, the difference between the price requested and the price filled, which can be positive or negative and which some brokers cap asymmetrically.

A small number of brokers publish execution statistics: average and median spread by hour, fill rates, average slippage and the share of orders filled at or better than the requested price. Those brokers are worth preferring on transparency alone. For the rest, the trader's own trade history is the only record, and comparing the average spread actually paid with the average advertised is a worthwhile exercise once a month.

Why there is no single cheapest broker

The cost of a trade depends on the instrument, the session, the holding period and the account type, and brokers price each of those differently. A broker with the tightest EUR/USD spread in London hours may have wide exotic spreads and a large swap markup. A broker with an unremarkable spread may have the smallest swaps in the industry because its liquidity providers are banks rather than other brokers. A broker with a generous commission rebate for high-volume clients is cheap for a scalper and expensive for everyone else.

The site's spread comparison shows the published figures side by side, and the swap comparison does the same for overnight charges. Neither replaces the arithmetic above, done for the trade a reader actually intends to place.

來源

• Published account specifications, spread tables and swap schedules of the brokers on the 88 Forex Brokers database
• European Securities and Markets Authority and Australian Securities and Investments Commission cost and charges disclosure requirements
• UK Financial Conduct Authority Consumer Duty guidance on fair value in CFD products
• Execution quality statistics published by brokers that disclose them

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