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What are Commissions, Spreads and Trading Costs?

What are Commissions, Spreads and Trading Costs?

The Forex trading market is probably one of the most popular type of trading in the entire world because it enables you to gain access to big opportunities where you can earn big money by just monitoring the movement of currencies. If you were to get yourself a Forex broker or use an online Forex […]

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The Forex trading market is probably one of the most popular type of trading in the entire world because it enables you to gain access to big opportunities where you can earn big money by just monitoring the movement of currencies. If you were to get yourself a Forex broker or use an online Forex platform like CMC Markets, you might think that the only money that you will have to shell out is money for your investment. For the beginners out there, it is very important that you learn about the different fees and costs that are included in the package when you hire a Forex broker or even join a Forex trading platform.

Learning About Broker’s Commissions

When you avail the services of a broker, whether a personal one or a virtual one, you will be paying a certain commission. This is how the broker earns. Each broker has its own commission structure that you will have to learn if you want to get into trading. Typically, there are two types of commission structures that brokers would follow: fixed commission or variable commission. For the fixed commission structure, you’ll be paying a fixed amount of commission for every trade that you avail of whether you earn from it or lose from it. For the variable commission structure, you will be paying a percentage of how much you invest or earn from the transaction.

Choosing Between the Two Commission Structures

Now that you’re ready to choose a broker, you have to select which of these two types of commission structures you want. In order to choose properly, you have to know the difference between the two and see which suits you best. The fixed structure may be easier to monitor and budget since you are paying a fixed amount but it is only worth it if you are investing a big amount. If you are investing a small amount only, you may lose more than you earn. For the variable commission structure, this would be the more preferred one by beginners as you can pay less. However, do take note that brokers that offer services with smaller commissions will not have as good services as the ones that demand bigger commissions.

Choosing the Right Broker

If you have decided which of the commission structures is suited for you, the next step is to choose the right broker. When you go into trading, you want to find the best broker who can help you earn. For this, you’ll need to find a reputable broker that you can have confidence in. To know which brokers are reputable, do some background research on the history of the brokerage and check the success rate of their clients. Also, check their history to see whether they are a legitimate company or not. Many brokerage firms on the internet are actually scams that take your money and run away with it. This is why you have to be careful when choosing brokers.