Commission

In forex trading, commission refers to the fee charged by a broker for facilitating trades on behalf of traders. It is the compensation that brokers receive for their services in executing and processing forex trades.

Commission in forex is typically charged in one of two ways: through a fixed fee per trade or through a spread markup.

1. Fixed Fee Commission: Some brokers charge a fixed fee per trade, regardless of the trade size or volume. For example, a broker may charge $10 per lot traded. This means that for every lot (which represents a standard unit of currency) traded, the trader will pay a fixed commission fee of $10.

2. Spread Markup Commission: Many forex brokers charge commission by marking up the spread. The spread is the difference between the bid price (the price at which the broker is willing to buy the currency from the trader) and the ask price (the price at which the broker is willing to sell the currency to the trader). Instead of charging a fixed fee, brokers widen the spread slightly and keep the difference as their commission. For example, if the spread on a currency pair is normally 2 pips, the broker may widen it to 2.5 pips and keep the extra 0.5 pips as commission.

It’s important to note that not all brokers charge commission in forex trading. Some brokers offer commission-free trading, but instead, they make money through wider spreads. In these cases, the spread is the only cost incurred by the trader.

When comparing different brokers, it’s essential to consider both the commission structure and the spreads they offer. Lower commissions can be advantageous for high-volume traders, while tighter spreads can be beneficial for traders who engage in frequent trading.

In conclusion, commission in forex refers to the fee charged by brokers for facilitating trades. It can be in the form of a fixed fee per trade or a spread markup. Traders should consider both the commission structure and the spreads offered by brokers when choosing a forex broker.