Brokerage fees is important in online currency trading due to heavy competition among Forex brokers in the market, they always come up with new and attractive features to increase their membership. Find the best Fx broker provide the low brokerage rates for traders helps a lot to make more profit in foreign exchange market, ForexSQ team will show you to choose a Forex broker with low brokerage fees.
As a newbie trader, there will be many aspects for you to consider, and brokers’ fee is one of them. However, it should not be the sole criteria for choosing a broker platform for trading. Many inexperienced traders also overlook other associated costs, which differ from one broker to another. If they misjudge these avoidable challenges, it will impact their plan of reaping long-term profits.
Majority of Forex traders fails because they don’t know how to trade well. Underestimating or mismanagement of trading costs will simply take you down, and many traders have learnt it the hard way. Some of them gave up, while others took the learning from it, to get into their next trades. Therefore, it is wise for a new trader to firstly understand the main trading costs. Of course, they will also need to empower themselves with capital management and market analysis skills.
Main Brokerage Fee In Trading
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Forex spreads & commission
Common cost connected with trading is spread, which is basically the commission rates charged for each trade you make. These are compulsory costs, be it winning or losing trades.
Spread – It is a fee that broker charges you for trading through their trading platform. Every time, you will be provided with two prices on every currency pair.
1. Buying price – bid price
2. Selling price – ask price
Spread means the difference of these two prices. For example, in a long buy trade on USD/Euro, the price chart displays 1.3000.
The FX brokers quote prices will include 1.3003 and 1.3000. If you desire to buy then you be entered in the long position fill at 1.3003. It means you are charged at 3 pips (1.3003 – 1.3000).
If you wish to make a short sell trade with the above price rates. The trade position fill is at 1.3000 but when you buy (exit) the short position there is a need to pay the spread. For instance, exiting at 1.982 will actually mean you exit through the trade is at 1.985.
In brief, the spread is the commission paid against trading. Bid-price is the highest value that your broker pays to buy the currency from you, and ask-price is the lowest value that the trade dealer pays to vend the platform for you. Therefore, to make profit and avoid trade loss, the exit price must at least cover the spread cost.
Variable rate spreads
Spread payment depends on market volatility, and also according to the currency pair traded. Variable spread fees are very common in the market, when there is high volatility.
For example, when the market is not so volatile, then the broker can charge +2 pip spread, but if the market activity increases, then the brokerage rates will also change. Increase in spread is to incorporate the extra risk of rapid, thin market conditions. The increase in spread may be just a small fraction, because the online Forex brokers will want to retain their users for the long term.
Commission is just like spread. It is charged on every trade, and to cover the commission cost, you will need to make profits.
The two forms of Forex commissions are:
1. Fixed fee – Broker charges fixed amount, regardless of volume and size of trade.
2. Relative fee – Trader is charged on the basis of the trade size.
Relative fee is a variable, and is based on the amount sold or bought. It is provided to support large trades, but you can check for alternatives with brokers.
Additional Brokerage Fees to consider
Some brokerages charge hidden fees like margin costs, inactivity fees, phone service charges, and quarterly/monthly minimums. so ask the broker before you want to open trading account to provide you low Brokerage Fees.
Low brokerage fees commission model
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Before deciding, which commission model to adopt, you will need to first understand your trading habits. A fixed fee is preferable for traders placing trades at high volumes, because the costs can be kept low. Relative fees are a good option from small traders investing in low volumes.
• Leverage – Traders use leverage as a tool to increase their profits on initial investment. While factoring between spreads & commissions, a trader needs to carefully use leverage, because it can inflate each trade costs to unmanageable levels.
• Overnight positions – Cost related to overnight hold of position is called ‘Overnight Rollover’ in the Forex market. The overnight interest rates of every currency bought or sold is also included. The difference between 2 interest rates will give you an idea of the holding fees for overnight. Broker does not determine the rates, but are decided at Inter-bank level.
• Data feeds – Besides the transactional costs mentioned above, the traders need to consider spending extra costs on live data feeds. This helps the traders conduct analysis of the market movements. It helps the trader to make vital decisions like –
1. How to manage open positions
2. When to enter or exit
3. Where to place stop losses
Timely and reliable market data is necessary for a trader to perform well in the long run. You can get them for fixed monthly costs, but the options will differ from one provider to another. Moreover, the efficiency and quality of data feeds that are provided also differ. Traders will need to determine the type of feed they are confident and are comfortable to use, before investing.
Besides data feeds, a trader may subscribe for magazines or TV packages. This will enable them to access 24/7 financial news channels.
Now, you are aware about overall Forex trading costs and Brokerage rates, it is time to understand how to select a brokerage platform with low Brokerage Fees.
How to select an ideal broker with low brokerage rates
• Look for license – It is important to select a Forex broker based in countries, where regulatory agency monitors trading financial activities. Countries like UK, USA, Japan, Australia, Eurozone, and Switzerland, have dedicated regulatory agencies. brokers in UK and Australia usually provide low Brokerage rates for traders.
• Reliability – A good trading platform is the one that does not freeze or crash often. Therefore, look for a stable and user-friendly platform.
• Capitalization – In accordance to state regulation, a broker needs a certain minimum capitalization level. If it is not fulfilled, then it means lack of funds and credibility.
• Customer support – Forex market is open 24 hours, so the potential broker should provide appropriate support. You can experiment with a demo account to check the efficiency and quality of the support team.
• Account types – Standard, mini and micro are the kinds of accounts provided. Select the one that suits your capital.
• Value Addition – A trader needs constant access to real-time charts, economic data, and Forex news for making informed trade decision. So check with the broker about how best they can help you.
• Leverage & margin call policies – Traders need to remember that high Forex leverage means high profits, but also escalated risk levels. So select leverage in accordance to your trading style and analysis. Some brokerage firm employs a FIFO method, a few follow LIFO procedures, while several of them just close the trade.
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