What Are Spreads and Commissions in Forex?

Introduction: The Hidden Costs of Trading

Every trade you make in Forex involves a cost — even before the market moves.

These costs are typically:

• Spreads
• Commissions

Understanding how they work is crucial to managing your profitability and choosing the right broker.

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1. What Is a Spread?

The spread is the difference between the bid price (sell) and the ask price (buy) of a currency pair.

🔹 Example:

• EUR/USD
  • Bid: 1.1000
  • Ask: 1.1002
  • Spread = 2 pips

This is a built-in cost: you always enter a trade at a slight disadvantage.

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2. Types of Spreads

There are two main types:

Type	How It Works	Best For
Fixed Spread	Same value regardless of market conditions	Beginners, budgeted trading
Variable Spread	Changes with volatility and liquidity	Active, short-term traders

⚠️ During news or high volatility, spreads can widen significantly.

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3. What Is a Commission?

Some brokers charge a flat fee per trade, especially with ECN accounts.

🧮 Example:
$7 per round-trip (open + close) for 1 lot

💡 These accounts often offer raw spreads (near zero), with commission as the only cost.

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4. Spread vs. Commission-Based Brokers

Model	How You Pay	Who Uses It
Spread-only	Broker profits from built-in spread	Casual traders, long-term
Spread + Commission	Ultra-tight spread + fixed fee	Scalpers, pros, institutional

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5. How to See Your Spread in Real Time

Most platforms (like MT4 or MT5) let you view the spread directly:

• Hover on the bid/ask line
• Add a custom spread indicator
• Check the Market Watch window

📉 Use a demo account to compare brokers’ spreads in action.

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6. How Spreads Impact Your Profit

The spread is what you “pay” the moment you open a trade.

🔻 If EUR/USD has a 2-pip spread and you go long, price must rise 2 pips just to break even.

👉 The lower the spread, the easier to reach profitability.

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7. Beware of Widening Spreads

Spreads can increase dramatically during:

• Economic news releases
• Low-liquidity times (e.g., rollover hours)
• Unexpected geopolitical events

🚨 This can hit your stop loss or increase your entry cost — plan accordingly.

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8. What About Swap Fees?

Swap (or rollover) is a separate cost charged for holding trades overnight.

It depends on:

• The interest rate differential between currencies
• Whether you’re long or short

📆 Check the swap table in your broker’s platform.

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Summary Table: Trading Cost Breakdown

Cost Type	What It Is	Applies When
Spread	Bid/Ask difference	Every trade
Commission	Fixed broker fee (usually per lot)	ECN accounts
Swap	Overnight interest charge or credit	Trades held overnight

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Conclusion: Know Your Costs Before You Trade

Spreads and commissions may seem small — but they add up fast.

• Choose a broker with transparent pricing
• Adjust your strategy for low-spread pairs
• Don’t overtrade just to “stay active”