Currency dealers heavily advertise that there are no commissions for trading currency, but that doesn’t mean the forex market is cheap to trade. Currency dealers earn their money through the spread, which is the difference between the price at which a dealer will sell a currency and the price at which the dealer is willing to buy it back. For most major currency pairs, the spread is very small, but the costs associated with that spread vary depending on the margin and leverage your account has used.
You’ll learn more about currency pricing shortly, but for now understand that the transaction costs of trading currency on the forex market can be significant. For traders who trade frequently, transaction costs can be a significant amount of money to overcome to reach profitability. Fortunately the forex market is a fast-moving one, and once you clear the price of the spread there are no further transaction costs. The more interbank trading partners a currency dealer has, the better that dealer’s pricing will be. Dealers with more than one or two interbank partners are able to take advantage of more quotes and pass them on to you.
Table 1.2 illustrates the difference in transaction costs for trading 10 different contracts across various market types. Although there is no commission, the forex market is certainly not a cheap market to trade. These prices were taken from the published commissions of a major broker’s web site. The cost of the currency spread assumes a euro/U.S. dollar transaction using leverage of 100:1.
TABLE 1.2 Transaction Costs Across Market Types
You’ll learn more about currency pricing shortly, but for now understand that the transaction costs of trading currency on the forex market can be significant. For traders who trade frequently, transaction costs can be a significant amount of money to overcome to reach profitability. Fortunately the forex market is a fast-moving one, and once you clear the price of the spread there are no further transaction costs. The more interbank trading partners a currency dealer has, the better that dealer’s pricing will be. Dealers with more than one or two interbank partners are able to take advantage of more quotes and pass them on to you.
Table 1.2 illustrates the difference in transaction costs for trading 10 different contracts across various market types. Although there is no commission, the forex market is certainly not a cheap market to trade. These prices were taken from the published commissions of a major broker’s web site. The cost of the currency spread assumes a euro/U.S. dollar transaction using leverage of 100:1.
TABLE 1.2 Transaction Costs Across Market Types
