Understanding the costs of trading is as important as understanding charts and indicators. Commission is one of the main ways brokers charge for the service of executing your foreign exchange trades. This article explains what commission is, how brokers apply it, how to calculate it, and how it sits alongside other trading costs such as spreads and swaps. Examples are included to make the ideas concrete. Trading carries risk; nothing here is personalized financial advice.
What commission is and why it exists
Commission is a fee a broker charges for processing your orders in the currency market. Brokers provide access to liquidity, trading platforms, and execution infrastructure; the commission helps cover those services. Some brokers incorporate their fees into the spread (the difference between buy and sell prices), while others show a separate commission line on each trade. Whether you see a visible commission or wider spreads, the cost is ultimately paid by the trader.
Think of commission as the fee you pay a travel agent for arranging a currency exchange at the airport: the agent ensures execution and convenience, and the fee compensates that service. In forex, brokers may charge commission because they offer tighter raw pricing to clients, pass on better spreads from liquidity providers, or simply follow a particular business model.
Common commission models
Brokers use several different billing methods. Each has advantages for some trading styles and disadvantages for others, so it pays to know the type before you open an account.
A common approach is a per-lot commission. This charges a fixed amount for each standard lot traded (a standard lot is usually 100,000 units of the base currency). For example, a broker might charge $7 per standard lot, round-trip. That means opening and later closing a 1.0 lot position costs $7 total.
Another approach is a percentage-based commission. Here the broker charges a small percentage of the trade’s notional value. If the rate is 0.02% and you trade a $100,000 position, the fee would be $20 (100,000 × 0.0002).
Some brokers operate spread-only accounts: you pay no separate commission, but the broker offers quotes with a larger spread than raw market pricing. In this model the spread already contains the broker’s revenue. A hybrid model mixes the two: smaller spreads combined with a modest visible commission.
There are also fixed-commission accounts where the fee per trade is constant regardless of notional size; these can be helpful for planning costs but may be inefficient for very small trades.
How commissions are charged in practice
Brokers can charge the commission on each leg of a trade or only once per round trip. “Per side” means you pay when you open a position; “round turn” means you pay for both opening and closing combined (often shown as a single round-trip fee). Always check whether the advertised commission is per side or round trip.
Account type affects pricing. Accounts marketed as “raw” or “ECN” typically offer narrower spreads and a visible commission. Standard or “spread-only” accounts tend to show no commission but have wider spreads. Commission levels can also vary by currency pair: major pairs usually have lower costs than exotic pairs, which are less liquid and carry higher execution cost.
Brokers sometimes offer volume discounts or tiered pricing: the more you trade, the lower your commission per unit may become. This structure can make a big difference for high-frequency traders and algorithmic systems.
Calculating commission — examples
Putting numbers to the ideas helps make them real. Imagine three scenarios.
Example 1 — Commission per lot (round trip): You trade 2 standard lots of EUR/USD and the broker charges $6 per lot round trip. The commission for the trade is 2 × $6 = $12. That amount is deducted regardless of whether the trade is profitable.
Example 2 — Percentage commission: You buy 50,000 units of USD/CAD at a rate that makes the notional USD value $50,000. The broker charges 0.02% per trade. The commission is $50,000 × 0.0002 = $10 for that trade (or twice that if charged round trip).
Example 3 — Spread-only account with markup: A raw market spread for EUR/USD might be 0.1 pip, but a spread-only broker quotes 1.5 pips. The additional 1.4 pips is effectively the broker’s fee. If each pip is worth $10 for a standard lot, that markup is $14 per standard lot round trip even though there’s no separately displayed commission.
When comparing brokers, convert their fees into a common unit (for example, cost per standard lot or cost per $100k traded) so you can compare true trading cost across account types.
Commission versus spread and swap — how they differ
Commission is only one component of trading cost. Spread is the difference between the bid and ask price; swap (or rollover) is the interest applied to positions held overnight. A trade can involve any combination: you may pay both a visible commission and the spread, or you may have no visible commission but a wider spread, and if you hold the position past the daily rollover time, you’ll also pay or receive a swap depending on interest-rate differentials between the two currencies.
For example, an ECN account might show a 0.2-pip spread on EUR/USD plus a $7 per lot commission, while a standard account might show a 1.5-pip spread and no separate commission. The total cost to you is spread cost plus any commission plus swaps if you hold overnight.
Choosing a commission structure based on trading style
Your trading frequency, position size, and holding period all influence which commission model suits you. Scalpers and high-frequency traders, who execute many small trades, often prefer accounts with low spreads and predictable per-lot commissions so each trade’s cost is minimal and transparent. Swing traders who place fewer trades and hold positions for days may prefer spread-only accounts that avoid per-trade commissions but accept slightly wider spreads.
Always run a simple cost projection: estimate the number of trades you expect, average position size, typical spread, and commission; multiply these and compare between account types. That simple exercise can reveal which structure is cheaper for your plan.
Practical tips when comparing brokers
When you evaluate brokers, read the fee schedule carefully and ask how commissions are displayed on the platform. Verify whether the commission is per side or round trip, and whether currency conversion or other administrative fees apply. Test execution on a demo account to observe average spreads and slippage under different market conditions. Also look for clarity about swap rates if you plan to hold overnight.
Keep in mind that the lowest headline commission is not always the cheapest option once spreads, slippage, and hidden fees are considered. Transparency and predictable execution are as important as the raw price.
Risks and caveats
Trading forex involves leverage and can result in significant losses. Commissions, spreads, swaps, and occasional hidden charges (such as inactivity or withdrawal fees) all reduce net returns and can compound if not tracked. During periods of low liquidity or major news events, spreads can widen dramatically and execution can suffer; commission structures that look attractive in calm markets may be costly in stressed conditions. Broker practices, regulation, and the exact wording in terms and conditions vary by provider; always read the fine print and consider the broker’s reputation and disclosures. This is general information, not personal financial advice.
Key Takeaways
- Commission is the fee a broker charges for executing trades; it can be shown separately or embedded in the spread.
- Common models include per-lot fees, percentage-based fees, fixed commissions, and spread-markup (commission-free) accounts.
- Compare total trading cost (spread + commission + swaps + other fees) and match the structure to your trading style.
- Trading carries risk; check all fees, test execution, and use this information to make informed choices rather than relying on headline rates.
References
- https://fenefx.com/en/blog/difference-between-commission-and-swap/
- https://www.stptrading.io/blog/types-of-commission-in-forex/
- https://www.kantox.com/glossary/foreign-exchange-commission
- https://www.tastyfx.com/news/why-do-forex-brokers-charge-commissions/
- https://www.forex.com/en-us/about-us/financial-transparency/trading-costs/
- https://forextraders.com/forex-education/forex-glossary/what-is-a-commission/