Jul 6, 2010
Forex Trading — Understanding Commissions, Spreads and Trading Costs
Spreads and commissions are important and you should know how much its costing you. If you dont’ know the total cost of the transaction you won’t know exactly how much risk you are taking on and can not make informed decisions as such.
The reason why most regular people invest with stocks is because of the cost of purchasing cheap stocks is seemingly small but when you add up all the costs in a trade usually that trader will make frequent emotional trades each time losing money through fees and commissions.
I have been seeing the same kind of behavior in the Forex market. Primarily through the use of the spread a broker is creating this spread and essentially your being middle more than once and in turn have to pay for that through your brokers spread.
Some brokers charge a spread and a commission when they are both low its usually better than other brokers who just use their spread.
Brokers that only charge commission and no spread are usually the most official but require a larger and proper initial investment like 5k to 10k. For example #mce_temp_url#
“IB provides the best bid/offer from multiple large banks and charges a separate low commission. We do this in the interest of transparent pricing instead of marking up our quotes and charging nothing in commissions as is the practice with many forex brokers. Because quote markups at other brokers are generally much larger than our explicit low commissions, our forex customers benefit from lower forex trading costs.”
The brokers that allow you to open account with 1000 or 500 or even 1 dollar US are just allowing you to get a taste of the real market that real investors are in with FOREX by allowing you to open an account with small capital or margin and high leverage and fees and spreads you essentially getting setup to fail.
This market was not widely known by the common person 3 or 5 years ago they way it is now after the US has regulated the financial industry making it harder for savvy investors to reap high profits through leverage. I myself haven’t’ heard of Forex in any real capacity other than news and quotes more than 3.5 years ago and already the rules have changed.
What is promising for anybody that is new to this game is the micro and cents accounts that allow you to trade cents or very small lots and give you a good idea of the market without putting up much capital. I have http://www.forexmicrolot.com/ FXCM Micro which is a branch of FXCM and they allow you 1k size lots and has pretty tight spreads and allow you to open an account with $25 USD.