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Forex brokers sometimes market the idea that forex trading has no commission cost, but that isn’t true. Commissions come in one of two possible forms: the spread or a fee.
Commissions from the spread come from the broker pocketing the difference between the ask and bid pricing for a forex pair.
AUD/USD is trading at the bid for 1.2498 and the ask for 1.2502, and
you buy AUD/USD for 1.2502. Your cost is four pips, the difference between the bid and ask. If your cost per pip is $1, then the cost of this trade is $4.
The next hour you want to close the trade. AUD/USD is trading at the bid for 1.2526 and the ask for 1.2530. The cost is opening the trade not closing. The total cost of the trade is $4.
On the trade, you gained 24 pips or $24, but your costs were 16.6% of your profits which is expensive.
Another method a broker may offer is fixed commission fee.
A fixed commission can be $5 regardless of the number of lots traded.
Using the prior example:
$5/$24 = 20.8%
$5/$120 = 4.2%
A fixed commission broker will usually have tighter spreads as well since they only profit from their fee.
A third model of commission fees is a contingent fee based upon the number of contracts traded.
The broker’s website states the fee per lot for each currency regardless of market volatility. Using the same AUD/USD example, a broker may charge $.05 per $1k traded.
One $10k trade ($1 per pip) costs $.50
$.50/$24 = 2%
$.50/$120 = .04%
Which model is most cost effective depends on two aspects of how you trade: how many trades you make and the size of your trades.
Commissions based on the spread are the most expensive form of fees for small or large traders. As a result of competition, this approach has been losing popularity.
Commissions based on fixed fees benefit large traders but are very expensive for smaller traders. Variable fees are a compromise for both small and large traders and are growing in popularity.
Short term traders are also known as “scalpers” need to maintain very high win rates to offset their commission costs.
Swing and position traders have lower commission costs than "scalpers" since they make fewer trades.
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Trading stocks typically have the lowest fees on eToro, which is one reason why I recommend you stick to this market when starting out.
All trades charge both a spread and daily rollover fees.
It really comes down to individual trading strategies and preference. But to give you an idea, I tend to hold on to stocks for a minimum of 6 months and all other trades tend to have an average duration of about two-three weeks.
A final word on over-trading.
This is a point that I want to expand on a little more, specifically in relation to copying other traders. Below is a screenshot of my equity chart over six months. The red line shows the number of people copying me.
My equity vs copiers chart.
The same holds true for the stock market in general.
Long-term growth of UK stock market.
How to Start Trading Cryptocurrencies.
Cryptocurrency trading can be extremely profitable if you know what you are doing, but it can also lead to disaster. Even though most traders decide to either go with fiat or bitcoin, other cryptocurrencies can represent viable income sources, as long you as you tread carefully and understand what you are doing. This guide is for those who want to start getting involved in cryptocurrency trading.
Where to trade.