Lets talk trading costs...

When you think about trading forex (FX and CFDs) there are a few thoughts that will cross your mind: What pair will I trade? Will I trade using technicals or fundamentals? What will be my risk/reward ratio?
 

Often we can get caught up in the second, third, and fourth steps but seldom do we as traders assess our broker and understand their fee structure.

Ultimately, brokers, liquidity providers, and market makers all apply a spread or commissions (sometimes both) to the accounts they offer, without this there is no incentive to provide a market to retail and institutional traders. 
 

But why are costs so important?
 

Let's peel this back a layer. Trading involves taking a view of how we think the market will play out, is the market overvalued? Undervalued? Or fairly priced? With this understanding, we take a position and place a calculated bet. 
 

Now knowing that you are placing a bet otherwise known as a position, we can think of the broker as the casino and the spread or commission as the 0 and 00 you see on a roulette table. This spread is there for brokers to earn revenue and place you at a slight loss when opening the trade. The reason most brokers want you to be at a disadvantage is because the vast majority of brokers run a B book (will dive deeper into this in another article).
 

Therefore, the lower the spread your broker offers the less movement or pips are needed to place your position into the green or a positive profit and loss (PNL). This is why the choice of choosing a broker cannot be understated.

Let me provide an example, lets say you are trading the EURUSD, you're a scalper and you want to take 8 pips out of the market and you placed the trade with Fusion Markets and XYZ broker. 
 

Fusion Markets has an average spread of 0.02 + 4.50 USD in commission and XYZ broker has a spread of  1.5 pip spread but no commission. Most traders would think XYZ is the better option since there is no commission but spread is usually where most of your cost is tied up in. You would save $10.30 USD per lot traded by choosing the broker with the lowest average spread and a commission.

So when you are picking your broker these are the core things to know.
 

1. What account type do they offer?
2. Where can I find the average spreads on each instrument?
3. What is the commission they charge per 1 lot traded?

Once you have answers to these questions you can compare your brokers head-to-head in a demo trading account and see who comes out on top. Or get in contact with the team at Best Broker Choice and we can do it for you, free of charge.