Unlike other exchange driven markets, the forex market has its unique feature which many market makers use to entice traders. They commonly promise that there will be no regulatory fees, data fees or exchange fees , and the best of all is without commission. To some new traders, this is a good news as they want to break0into the business of trading. Trading with no transaction cost is obviously a great advantage. Nevertheless, it will look like a bargain to inexpert traders might not be the best deal available or even is not good at all somehow. We are going to show you the way to evaluate forex broker commission or fee structures and find the one which suits you the best.
The structure of commission
In fact, there are three commission forms which are used by brokers within forex. Some firms even offer a fixed spread, while others offer a variable spread. Others may also offer commission charge which is based on the spread percentage. Which one is the best option then? At first glance, it may seem that the fixed spread might be a great option, because you are going to know what to expect. Nonetheless, before jumping in and choosing the right one, you have to consider few things before.
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The spread is actually the difference between the ask rice where the price is prepared to sell you the currency with the bid price which is prepared to pay you for purchasing the currency. Pretend you see these following quotes “EURUSD – 1.2345 – 1.2347”. these quotes mean that the spread is about two pips, the difference between the ask price 1.2347 and the bid price 1.2345. if you deal with amarket maker who offers a fixed spread of two pips instead of variable spread, the differences will always two pips, despite of market instability.
In case a broker who is offering a variable spread, you are also able to expect a spread that wull be as as 1.5 pips or even higher as 5 pips, depends on the pair of currency which is being traded and the market instability level.
Some brokers might also charge a small commission, probably 2/10 of 1 pip and then will pass the order flow which is received from you into larger market maker with whom they have connection. In this arrangement, you are able to receive a tight spread with the aim of only larger traders can or else access.
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Different broker will affect the service levels
So what type of the bottom line commission that can affect your trading? However, it’s such a difficult question as there are some factors you will need to keep in mind when it comes to weight what is most beneficial for trading account you belong to.
For example, in addition not all forex brokers can make an equal market. The market of forex is an over-the-counter market, that means that banks which acts as primary market makers, have connections with price aggregators and other banks, based on each organization creditworthiness and capitalization. There will never be guarantors or exchanges which are involved, but just the agreement of credit between every player.
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