What a Trade Really Costs

Three charges sit between you and a profitable trade. Two of them are visible if you look, and the third catches people out because it arrives while they are asleep.

Spread as a cost you pay on entry

You buy at the ask and sell at the bid, so every position opens at a small loss equal to the spread. Nothing has gone wrong; you have simply paid the cost of entering.

On EUR/USD with a 1-pip spread and one standard lot, that is $10 at the moment of opening — the price has to move one pip in your favour just to reach break even.

The spread is quoted in pips, so what it costs in money scales with your position size exactly as pip value does. On a micro lot the same 1-pip spread is $0.10.

Commission per lot

Some accounts charge a separate commission and quote a much tighter spread in exchange. Commission is usually stated per standard lot per side, or per round turn — and the two are easy to confuse.

Commission scales with size like everything else: 0.10 lots at $3.50 per side is $0.35 to open and $0.70 for the round turn.

Swap, rollover and triple swap day

Hold a position past the broker's daily cutoff — usually 5pm New York — and it is rolled over to the next value date. That rollover carries an interest adjustment called swap, and it can be charged or paid depending on the pair and your direction.

The reason is that you are long one currency and short another. You earn the interest rate of the one you hold and pay the rate of the one you owe; swap is roughly the difference, adjusted by the broker's own markup.

Triple swap day is the one that surprises people. Spot forex settles two business days forward, so the rollover on Wednesday night covers Saturday and Sunday as well — three days of swap in one charge. Most brokers apply it on Wednesday; some use Friday. It is worth knowing which yours does before you hold a costly position into it.

Adding it up: cost per round turn

The only figure that means anything is the total for one complete trade, in money, at the size you actually trade.

The raw account looks more expensive on the headline — it has a commission the other does not — and is cheaper in fact. This is the comparison that matters, and it is the one the marketing does not do for you.

Cost matters in proportion to how often you trade and how far you aim. A trader taking 15-pip targets pays cost on every trade against a small gain; a trader holding for 200 pips barely notices the same charge but may care a great deal about swap.

• Work out your cost per round turn in money, at your normal lot size, not in pips.
• Compare it against your typical target. Cost as a share of the move is what tells you whether a style is viable.
• Check swap before holding overnight, in both directions. It is occasionally positive, and occasionally much worse than expected.