Trading Fees 101: Examples & Breakdown of Broker Costs

Overview of Direct Trading Costs

Direct trading costs include spreads, commissions, swap rates, overnight financing costs, storage fees, and custody fees. Not all costs apply to every trade; they depend on the traded asset, whether the trade is margined, and the duration of the position. Many brokers provide calculators to help traders estimate costs before placing an order.

Spread

The spread, which refers to the difference between the bid price and the ask price in forex trading, is the most visible cost associated with trading. This gap constitutes the core revenue source for brokers, who typically add a markup to the raw spread to generate profits.

In the forex market, the EUR/USD currency pair is renowned for its exceptional liquidity. This high liquidity results in some of the lowest spreads, with raw spreads occasionally as tight as 0.0 pips. Any spread above this minimal level reflects the broker's markup, which varies based on their business model and market conditions.

While spread information is prominently displayed on every brokers website, traders can also easily access real-time spread data directly through their trading platforms.

Commission

Some accounts may offer EUR/USD spreads as low as 0.0 pips, but brokers charge a commission per lot. Accounts that charge commissions are typically ECN accounts, which use a no-dealing-desk execution model. Traders receive the raw spread or a spread very close to the raw spread, while the broker charges a commission. Commissions are also applied to stock trades and other asset classes such as ETFs, ETCs, and bonds.

Swap Rate

The swap rate, sometimes referred to as the rollover rate, applies to positions held overnight. It is generated due to the interest rate differential between the base currency and the quote currency. Brokers outline the calculation method for swap rates, which are divided into swap long rates and swap short rates. Depending on whether the trader holds a long or short position, the swap rate is either debited from or credited to the account balance. However, many brokers fail to pass on positive swap rates to traders.

Forex traders can view the exact swap rates on their MT4 trading platform by following these steps:

1. Right-click the desired symbol in the “Market Watch” window and select “Symbol.”

2. Choose the desired currency pair and click “Properties” on the right-hand side.

3. Scroll down to locate “Swap Long” and “Swap Short.”

Overnight Cost

This is a cost associated with margin trading. Brokers explain how the effective overnight financing rate is calculated, which depends on the leverage used for each trade and the type of asset being traded. This cost requires close monitoring, as the longer a position remains open, the higher the accumulated cost.

Storage Fee

Some brokers charge a storage fee for holding specific assets. This is an unnecessary fee applied solely for maintaining positions in the account, in addition to existing swap and financing fees. Essentially, it is a fee for holding positions within a portfolio. Traders should avoid brokers that impose storage fees.

Custody Fee

Custody fees are required for holding stocks, ETFs, and bonds. These fees are typically a small annual percentage charged monthly, with a minimum fee threshold. Not all brokers offer direct stock or bond trading. Instead, they may provide access to price movements via Contracts for Difference (CFDs), allowing traders to participate without incurring custody fees.

Indirect Trading Costs

Indirect trading costs are fees not directly tied to individual trades but include expenses such as withdrawal fees and inactivity fees. All brokers waive deposit fees by industry standard. Some brokers even reimburse traders for bank transfer deposits (typically charged by the trader‘ banks). While brokers generally do not charge withdrawal fees, third-party fees (e.g., bank wire fees) may apply. All deposit/withdrawal-related costs must be disclosed on the broker’s website.

Another unnecessary cost is the inactivity fee, charged by brokers for accounts that remain dormant for extended periods (e.g., no trades for 90 days or balances below minimum thresholds). To avoid this, traders can either execute small trades periodically or choose brokers with no inactivity fees (e.g., Exness, XM).

OANDA Account Fee Structure

OANDA charges spreads and commissions on both of its account types. The Core Spread & Commission Pricing model is available to clients with an account balance of USD $10,000 or more.

OANDA Deposit & Withdrawal Policies

• Bank Wire Transfer:
• No fees for receiving wire transfers.
• Your bank or intermediary banks may charge fees, which could reduce the deposited amount.
• Debit Card & ACH:
• No fees for deposits via debit card or ACH transfers.
• Your bank may charge fees for outgoing transactions.

Financing Fees

• Holds/rollover fees are applied to long-positions held overnight, calculated based on leverage and asset type.
• First withdrawal exemption: No fees for the first calendar month withdrawal via debit card or ACH.

Inactivity Fee

• Charged at 10 units monthly (e.g., $10 USD for USD-denominated accounts) if:
• No trades for 12 consecutive months.
• Account balance falls below the minimum requirement.
• Exceptions:
• Fees stop if the account is closed, trading resumes, or the balance reaches zero (no negative balances).
• Fees are charged per sub-account, not per master account.

Reimbursement for Inactivity Fees

• Eligible clients may claim a refund for up to three months of fees after reactivating trading.

Unfunded Accounts

• No negative balances for accounts without deposits.

TastyFX Fee Structure

Forex Trading Costs

Spread

• Competitive spreads starting as low as 0.8 pips for EUR/USD, covering over 80 currency pairs.

Margin

• Margin trading allows exposure to markets with a fraction of the position value. Margin requirements vary by currency pair (e.g., 2% for EUR/USD, 5% for USD/JPY).

Overnight Financing Fee

• Charged on positions held past 5:00 PM ET, calculated as the overnight rate plus a small administrative fee.
• No fee if positions are closed before the cutoff time.

Currency Conversion Fee

• Applies to non-base currency trades (default setting). Standard fee: 0.5%.

Key Takeaways

1. Trading Costs:
1. Include spreads, commissions, or a combination.
2. Overnight financing fees apply universally, while brokerage-specific policies may vary.
2. Non-Trading Costs:
1. Withdrawal and inactivity fees are common but vary by broker.
2. Retail forex/CFD brokers typically do not charge custody or storage fees for traditional securities.
3. Broker Selection:
1. Prioritize platforms with transparent fee structures (e.g., clear spreads, no hidden charges).
2. Compare margin requirements and overnight financing policies to optimize costs.