Commission

Every trade you place has a cost. Understanding exactly what that cost is, and how it compounds over hundreds of trades, is the difference between a strategy that works on paper and one that works in practice. Many beginners focus obsessively on finding the "right" entry while ignoring the structural drag that trading costs create on their performance.

This lesson breaks down the two primary broker revenue models, explains how to calculate your true all-in cost per trade, and demonstrates why trading costs matter far more for some trading styles than others.

The Two Broker Revenue Models

Forex brokers earn revenue from your trading activity through one of two primary models, or sometimes a combination of both.

Model 1: Spread-Only (No Commission)

Advantages:

• Simple to understand, one number represents your cost
• No surprise commission charges
• Better for traders who prefer cost transparency in the spread

Disadvantages:

• Spreads are typically wider than raw interbank spreads
• Less price transparency, you cannot see how much markup the broker is charging
• Spreads can widen dramatically during volatility

Model 2: Raw Spread + Commission (ECN/STP)

In an ECN (Electronic Communication Network) or STP (Straight-Through Processing) model, the broker passes through the raw interbank spread, sometimes as low as 0.0 pips on EUR/USD during peak liquidity, and charges a separate fixed commission per lot traded.

Example ECN pricing:

• Raw spread: 0.2 pips
• Commission: $3.50 per lot per side ($7.00 round turn)
• Total cost: 0.2 pips + $7.00 = approximately 0.9 pips equivalent

Advantages:

• Tighter raw spreads, especially during high-liquidity sessions
• Full price transparency, you see the true market spread plus a known commission
• Generally lower all-in costs for high-volume traders

Disadvantages:

• More complex to calculate total cost
• Commission adds up visibly in the account statement
• Some beginners find the separate commission confusing

Understanding Commission Terminology

Common Commission Ranges

The total cost tends to be similar across models for the same quality of execution. A broker offering 0.0-pip spread with $7 commission may cost the same as a broker offering 0.7-pip spread with $0 commission. The structure differs; the bottom line is comparable.

Commission on Smaller Lot Sizes

Commission scales proportionally with lot size:

• 1 standard lot (100,000 units): $7.00 round turn
• 1 mini lot (10,000 units): $0.70 round turn
• 1 micro lot (1,000 units): $0.07 round turn

Some brokers set a minimum commission (e.g., $0.10 per order), which can make micro-lot trading proportionally more expensive.

Calculating Your All-In Trading Cost

To understand your true cost per trade, you must add every component:

All-In Cost = Spread Cost + Commission + Swap (if held overnight)

Spread Cost in Dollar Terms

Spread cost = Spread in pips x Pip value x Number of lots

Example: EUR/USD with 0.3-pip raw spread, trading 0.50 lots:

• Spread cost = 0.3 x $10.00 x 0.50 = $1.50

Total Cost Example

You buy 0.50 lots of EUR/USD on an ECN account. Raw spread is 0.3 pips. Commission is $7 per standard lot round turn. You hold the position for two days with a daily swap of -$4.20 per lot.

• Spread cost: 0.3 pips x $10 x 0.50 = $1.50
• Commission: $7.00 x 0.50 = $3.50
• Swap: $4.20 x 0.50 x 2 days = $4.20
• Total all-in cost: $9.20

If your trade target is 30 pips (= $150 profit at 0.50 lots), the cost represents 6.1% of your gross profit. That is manageable.

But if you are scalping with a 5-pip target (= $25 profit at 0.50 lots), the same $9.20 cost represents 36.8% of your gross profit. This illustrates why trading costs are disproportionately important for short-term strategies.

Impact on Different Trading Styles

Scalpers: Commission Sensitivity

Scalpers are the most cost-sensitive traders. They may execute 20-50 trades per day, each targeting small pip gains. The difference between a $5 round-turn commission and a $10 round-turn commission, multiplied by 30 trades per day and 20 trading days per month, is:

• $5 difference x 30 trades x 20 days = $3,000 per month in additional costs

This is why professional scalpers obsess over broker selection and negotiate commission rates. For a scalper, the cheapest all-in cost is not a nice-to-have, it is a survival requirement.

Swing Traders: Swap Sensitivity

For swing traders holding positions for 3-10 days, the commission is a one-time cost, but swaps accumulate daily. A negative swap of $8 per standard lot per day on a 7-day hold costs $56, potentially more than the initial spread and commission combined.

Swing traders should compare broker swap rates as carefully as they compare spreads and commissions. A broker with slightly wider spreads but significantly better (less negative) swap rates may be cheaper overall for a swing trading approach.

Comparing Broker Costs: A Practical Framework

When evaluating brokers, do not compare just one cost component. Use this framework:

1. Identify your trading style, How many trades per day/week? What is your average hold time?
2. Calculate cost per trade, Spread + commission for your typical lot size
3. Add swap cost for your average hold duration
4. Multiply by trade frequency, What is your monthly cost?
5. Compare the monthly total, This is the meaningful comparison, not the headline spread or commission

A broker advertising "spreads from 0.0 pips" with a $12 round-turn commission may cost more than a broker offering "spreads from 0.6 pips" with a $5 round-turn commission. The marketing number is not the number that matters.

Hidden Costs to Watch For

• Slippage: The difference between your requested price and the actual execution price. Poor execution quality can add 0.5-2 pips of hidden cost per trade.
• Requotes: Some brokers reject your order at the requested price and offer a worse price. This is an implicit cost.
• Inactivity fees: Some brokers charge monthly fees for dormant accounts, typically $5-$25 per month after 3-12 months of inactivity.
• Deposit/withdrawal fees: Wire transfer fees, currency conversion charges, or withdrawal processing fees.
• Currency conversion: If your account is in USD but you trade EUR/GBP, the broker converts your P&L from GBP to USD. Some brokers charge for this conversion.

Key Takeaways

• Forex brokers use two primary models: spread-only (markup built into the spread) and raw spread plus commission. Neither is inherently better, the all-in cost is what matters.
• "Round turn" means the total cost for opening AND closing a trade. Always verify whether a quoted commission is per side or round turn.
• Your all-in cost = spread + commission + swap. Calculate this for your typical trade before committing to a broker or strategy.
• Cost impact scales inversely with trade target. A 1-pip cost on a 5-pip target is devastating (20%); on a 200-pip target it is negligible (0.5%).
• Scalpers must minimize all-in costs as a survival requirement. Swing traders should focus more on swap rates. Position traders need to evaluate the full holding-period cost.
• Compare brokers on total monthly cost, not headline spread or commission alone. Include slippage, swap rates, and any ancillary fees in your comparison.
• Never assume the cheapest advertised spread is the cheapest broker. Marketing numbers and actual trading costs are often very different.

This lesson is for educational purposes only. It does not constitute financial advice. Trading forex involves significant risk of loss and is not suitable for all investors. Broker commissions, spreads, and swap rates are subject to change without notice.