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What Commissions a Broker has and how they affect earnings

Your capital may be at risk. This material is not investment advice.

The impact of a broker’s commissions on a trader’s profitability is often overlooked. There are a variety of fees to take into account, such as spreads and swaps, among others, which differ from one broker to another.

Even with the same broker, the costs of trading on the stock market may differ from the commissions for Forex, which in turn may differ from the fees for trading cryptocurrencies.

So how do you find the best trading commissions that suit your needs?

This article will explain everything you need to know about:

  • The different types of commissions that exist in trading
  • How the broker’s commissions can be different depending on the asset we operate
  • The difference between receiving the cheapest trading fees vs typical trading fees
  • How to make a comparison of the commissions of the online broker and
  • How could you start trading today with the lowest trading costs on the market.

¿Qué son las comisiones en trading?

When buying or selling in a particular financial market, there are costs involved in doing so. These costs are known as trading fees or broker commissions. In some countries they are also commonly known as brokerage fees.

The amount you pay in commissions when trading will vary between brokers, as well as between different asset classes.

Historically, trading commissions were quite high due to inferior technology and difficult access to markets. However, the internet and new technologies have revolutionized the industry, making the field of brokerage highly competitive and offering traders some of the lowest fees in history.

But not all brokers are the same and some have much higher commissions than others, as you will see in the following sections.

Types of Commissions of a Broker

When you start to get interested in the world of trading, one of the first questions that should come to your head is: what commissions does a broker charge?

Below is a list of some of the more typical trading costs to consider.

Not all brokers charge a fee for a particular service or product and some are higher or lower than others. There may be other additional or hidden charges that are unique to a broker, so it’s worth reviewing the terms and conditions of each to be sure.

Spread
The most common type of brokerage fee is the spreads on each instrument we trade. The spread is the difference in value between the purchase price (ask price) and the sale price (bid price) of an asset. It is also known as the bid-ask spread and it varies greatly between brokers and asset classes.

You can see the spreads of the different instruments on the broker’s own website or through the trading platform.

➣ For example, in the MetaTrader trading platform you can see the buy and sell prices of different asset classes through the Market Watch window (Ctrl + M):

BROKER COMMISSIONS

You can also see the spread by selecting the “New Order” option on the chart of the instrument you want to trade. This will open an order ticket in which you will see the purchase and sale price of the asset.

The spread can be calculated by subtracting the ask price from the offer price. In the image above, in the case of EURUSD, the difference between the two prices is: 1.21996 – 1.21987 = 0.00009.

As a move of a pip in EURUSD is 0.0001, the previous spread is 0.9 pips.

If the market moves 0.9 points in the chosen direction when opening the position, then you would find yourself at a “breakeven” level, since the spread value would have been covered.

↳ Any price difference that goes beyond 0.9 pips is a potential profit, as long as it is in the direction in which we have opened the trade.

And now, how do you know if your broker’s spreads are the best or the lowest on the market? The only way to find out is to do a trading fee comparison.

Online broker commissions comparison
On July 16, 2019, a comparison test of online trading commissions was carried out and the following table was offered:

As you can see, brokerage fees vary from broker to broker, some higher and some lower.

➣ For example, traders who trade the CFD Dow Jones (Contract for Difference) would be paying up to 200% more spread if we compare the broker with the lowest spread to the highest. That is a significant impact on anyone’s earnings!

Commission per operation
In addition to the spread, there may be an additional trading fee for each transaction made.

Many brokers offer ECN (Electronic Communication Network) and STP (Straight Through Processing) trading accounts where traders can trade directly with the broker’s liquidity provider (usually top-tier banks). This allows users to get the lowest possible trading spread.

For example, with the Zero.MT4 or Zero.MT5 account, which offer the possibility of trading STP, the commission for each lot traded can range from $ 0.05 to $ 3. However, the benefit of this is that the spreads on these accounts start from 0 pips! If you are interested in opening an account, you can see all the types of account that we offer with their different characteristics by clicking here.

In addition, you can calculate the commission that you would have to pay with this type of account with the help of the table in our Calculation of commissions section. There are also practical examples so that you don’t have any doubts!

For a traditional type of Forex account, such as a Trade.MT4 account, there are no Forex fees, just spreads and swaps.

On the other hand, in CFDs on stocks and ETFs, stock market commissions of a percentage of the total value of the shares that are being traded or per share that are being traded are charged. More details can be found in the Online Stock Trading Fees section further down the article.

The swap can be found directly in the MetaTrader. In the Market Watch section (Ctrl + M), users just have to right-click on the instrument they are interested in and select Specification.

This will open a description window with the Swap values for long positions (buy operations) and Swap for short positions (sell operations).

As we can see in the example, the Swap line for short positions shows us the amount -0.14, which means that the traders will be subtracted the value of 0.014 pips and this will vary depending on the size of the open contract to keep an open trade overnight.

Traders who hold a buy trade open overnight will have to pay 0.721 pips to do so, which will be subtracted from the trading account.

Other trading fees

There are other broker fees that must be taken into account when trading, which vary from one to another, and which can be the following:

Trading commission for inactivity
Today, many brokers charge a monthly inactivity fee.

Broker fees for currency conversion
Brokers often charge a currency conversion fee if you are trading instruments that trade in a currency other than the currency of your trading account.

Broker fees for withdrawals
Although many brokers offer fee-free deposits, most charge some type of withdrawal fee. This will vary depending on the withdrawal method and amount.

Now that you know more about brokerage fees, let’s take a look at a specific financial asset that carries other types of additional costs.

Types of Commissions on the Stock Market

Stock trading fees differ greatly between brokers.

There is also a difference depending on the type of account and the trading style that you are going to use, this is:

➜ if you are going to trade CFDs on stocks or ETFs (Exchange Traded Fund), with the Trade MT5.account

➜ or the Invest.MT5 account, which is for investing in stocks and cash ETFs.

Let’s take a look at the trading fees for both styles and accounts.

Commission CFDs on shares
As stock CFD trading allows users to trade on margin, there are swap fees to keep trades open overnight, as well as the spread.

➣ Swap rates for Stock CFDs are calculated differently than the Forex market and are quoted in percentages

Commission CFDs on shares
As stock CFD trading allows users to trade on margin, there are swap fees to keep trades open overnight, as well as the spread.

➣ Swap rates for Stock CFDs are calculated differently than the Forex market and are quoted in percentages

Commissions on Shares and Spot ETFs
When you invest in stocks and cash ETFs you also have to pay the spread.

There are also stock exchange commissions per transaction, which you can consult on the Contract Specifications page of the symbol you are trading.

However, when investing in stocks, the investor must pay the full value of the stocks they are buying up front. Since this type of investment does not use margin or leverage, there are no swap fees to pay overnight.

MT5 allows you to invest in stocks and ETFs from 15 of the largest stock exchanges in the world? In fact, you can also get access to free real-time market data, low transaction fees, zero account maintenance fees, free high-quality market updates, dividend payments, and much, much more.

Short-term brokerage expenses

Short-term traders, such as intraday traders, often pay lower commissions as they do not hold trades overnight, thus avoiding overnight swap fees.

However, in some cases, you may be missing the opportunity to trade markets that offer a positive transfer with funds credited to your account each night, a positive swap.

➤ The most important short-term fees for intraday traders are the spread and the trading fee per transaction. In essence, the lower the spread, the lower the cost to the trader and therefore the higher the overall profit on the account.

As we have seen in the example above the article, spreads vary from one broker to another, with some higher and others lower. For some beginning traders, the difference in spread values ​​may seem small and therefore they are not aware of what that difference really implies.

However, costs add up over time, which has a significant impact on anyone’s earnings!

It is really worth finding a broker with the most competitive commissions for the markets you want to trade in. Unfortunately, there are some brokers that advertise the lowest trading commissions at a certain time of the day, such as the London trading session, where trading activity is high and spreads are very low, as there are more buyers and sellers than they operate in the markets.

➣ However, they are not real data, since their typical spreads are usually much higher for the rest of the day since the spread is also reflected in quieter times. Of course, not all brokers do this, but some do.

How to Compare Trading Commissions Without Going Crazy

Keeping track of trading fees between different asset classes and trading accounts can seem overwhelming. The best way to compare online trading fees between different asset classes and accounts is to use the a Trading Calculator, in conjunction with your MetaTrader platform.

Your trading platform will give you real-time information on spreads, while the trading calculator can help you calculate your exchange commission per transaction, as well as the swap values ​​for your trades.

➨ For example, traders can select any of the instruments available to trade

➨ Afterwards, we would have to select the volume of the operation we want to open, the number of lots, select the base currency of the account and write the opening and closing price of the operation, as well as the address, if it is a trade of buy or sell.

➨ After clicking calculate, the trader will see the possible monetary gains and losses that the operation would have, as well as the commissions – if it is an instrument that carries commissions – and the value of the swap to maintain a trade overnight.

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future. In accordance with European Securities and Markets Authority’s (ESMA) requirements, binary and digital options trading is only available to clients categorized as professional clients.
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