Understanding Trading Costs

Spreads

The difference between the bid (sell) and ask (buy) price. This is how most brokers make money.

Tight spreads: EUR/USD ~0.1-0.5 pips — good for scalping Wide spreads: Exotic pairs, low liquidity times — bad for frequent trading When spreads widen:

• News releases
• Session opens/closes
• Low liquidity hours (weekends, holidays)

Commissions

Some brokers charge a commission per trade (usually $3-$7 per standard lot round-turn) in exchange for tighter spreads.

Commission vs Spread:

• ECN accounts: Tight spreads + commission = lower cost for large trades
• Standard accounts: Wider spreads, no commission = better for small traders

Swap Fees (Overnight Funding)

If you hold a position past the daily rollover time (5 PM EST), you pay or receive swap fees.

Positive swap — You earn interest (rare, depends on pair direction) Negative swap — You pay interest (more common)

How Costs Affect Your Trading

A trader making 10 trades/day with a 1-pip spread pays ~$50/day or ~$1,000/month in spreads. That needs to be covered by your edge.

Minimizing Costs

• Trade during high-liquidity hours
• Choose pairs with tight spreads
• Consider commission-based accounts for larger volumes
• Factor costs into your risk-reward calculation
• Use a trading journal to track total costs vs profits

Small costs compound. Keep them as low as possible.