Forex – the foreign exchange market – is a trading area where different currencies are sold and bought. To this day, the international currency market is one of the largest and most gainful financial markets. The extent of transactions conducted reaches about forty trillion dollars every day. Financial companies and banks and private traders are the ones who participate in the market. One of the features that distinguishes it from other financial markets is that it works around the clock five days a week and therefore gives a permanent opportunity to earn profits.
A trader who is operating on Forex has the opportunity to gain large amounts while investing insignificant funds. One thing though, besides earning money on Forex, the person who trades also has to pay commissions. It is the fee charged for running trading operations. Commissions can be charged for sell or buy trades with currencies. The main commission on foreign exchange market is spread that is the difference between the currency’s sale and purchase. There are also other commission types that are charged. One of them is called a rolling commission which is charged daily as long as the investor’s trade stays open. There are charges for opening an order or withdrawing funds too.
As a rule, the foreign exchange market commission is a small amount of money, but if the trader operates in a short-term period and is opening and closing many trades a day, the charged fee will be a bit higher.
Usually, the size of the commission fee depends on the following factors:
Liquidity of currency pairs – For example, popular currency pairs like EUR/USD or BGP/USD, AUD/USD have a lot smaller commission fees than “exotic” pairs. Very often, the fees between exotic and classical currency pairs differ by a great extent.
The volume of operations executed – Very big and very small operations have higher commission fees than moderate trades.
Market conditions – This has a lot of effect on the size of forex commissions. When the market conditions are good, the experienced traders usually project the commission size to expand. It’s part in determining the fees plays low liquidity as well, which is caused by the time of the year or even the day – the commission tends to rise under these conditions.
There are a few different types of foreign exchange commissions or spreads. A spread can be floating or fixed, charged for small or standard accounts. Floating spread is a charge equaling to two points at a stable market situation, but it can be advanced to forty-fifty points if there are any unforeseen events in the market field. Fixed spread is a fee that doesn’t change under any conditions in the market.
The size of rendered spread should be taken into account by traders who are choosing a broker for forex trading on the international currency market. Investors should be careful with brokers promising to cover all expenses, because the profits of brokers are earned by charging the spread as a fee for trades. Preference should be given to that particular broker which allows to work on the market without any extra commissions and allows using spread as a payment for completed trades. Before opening an account with one of the many forex brokers, always perform an analysis among the most suitable representatives.