Understanding spreads and commission
What trading actually costs, and how to compare two accounts fairly.
The spread is the first cost
Every quote has two prices: the one you can sell at and the one you can buy at. The gap between them is the spread, and it is why a position opens fractionally underwater. Close immediately and you lose the spread; that is the broker's revenue on a commission-free account.
Spreads are quoted in pips - the fourth decimal place on most currency pairs. On a standard lot of EUR/USD, one pip is about $10, so a 0.8 pip spread costs roughly $8 to open and close a position.
Commission is the second
Raw-spread accounts pass through a much tighter market spread and charge a separate commission instead. It is normally quoted per side or per round turn, and per standard lot: $3.50 per side is $7 per round turn.
The trap is comparing a raw account's spread against a standard account's spread and concluding the raw one is cheaper. Convert the commission into pips first and add it.
- Round-turn commission ÷ $10 ≈ its cost in pips on a standard lot
- All-in cost = average spread + commission in pips
- Compare all-in costs, never advertised "from" spreads
Overnight financing is the one people forget
Hold a leveraged position past the daily rollover and you pay or receive financing, calculated on the full position size rather than your margin. On a position held for months this can exceed everything you paid in spread and commission combined.
It can also be positive. Holding a currency with a higher interest rate than the one you sold can earn a small credit each night - which is a real effect, and not a strategy.
The costs nobody advertises
Currency conversion is charged whenever a trade settles in a currency your account is not held in, typically as a percentage markup. Inactivity fees apply to dormant accounts. Withdrawal fees vary by method. None of these appear in a spread comparison table, and together they often matter more than the difference between two brokers' EUR/USD pricing.