Forex Trading Costs Explained: Spread, Commission and Swap

Spread and commission are paid on every trade; swap only on positions held past the daily rollover, which is 17:00 New York time at most forex brokers. Other costs, such as slippage, currency conversion on deposits, and inactivity or withdrawal fees, are covered at the end.

Every price has two sides: the bid, where you can sell, and the ask, where you can buy. The spread is the difference, and you pay it because you buy at the higher price and sell at the lower one. If EUR/USD is quoted 1.10000 / 1.10012, the spread is 0.00012, or 1.2 pips.

The gold line shows that the cost doesn't depend on what you call a pip: $0.30 is 3 pips of $0.10 at $10 each, or 30 "pips" of $0.01 at $1 each. Either way it is $30 per 100-ounce lot.

Variable spreads

Most retail spreads are variable. The figure on a broker's website is usually a typical or average spread during liquid hours. Spreads widen around the daily rollover, at the weekend open, in thin markets and around major data releases, sometimes to several times their usual size. If you trade at those times, measure the spread you actually get rather than relying on the advertised figure.

How the spread interacts with your stop

Charts normally show the bid. A long position opens at the ask and closes at the bid, so it starts out showing a loss equal to the spread, and its stop is triggered when the bid reaches the stop price. A short position opens at the bid and closes at the ask, so its stop and target are triggered by the ask, the price you don't see on a bid chart. When spreads widen, shorts can be stopped out even though the bid line never touched the stop.

Raw-spread (often called ECN) accounts charge a commission on top of a narrower spread. It is quoted in one of two ways, and confusing them doubles or halves the figure:

• Per side: charged when you open and again when you close. $3.50 per lot per side costs $7 per lot for a complete trade.
• Round turn: one figure covering the open and the close. $7 per lot round turn is the same as $3.50 per side.

Some brokers quote commission per million of notional traded instead, for example $35 per $1 million per side. One lot of EUR/USD at 1.1000 is $110,000 of notional, so the commission is 0.11 × $35 = $3.85 per side, or $7.70 round turn. Because notional depends on price, per-million commission varies slightly between instruments and over time.

Converting commission into pips

To compare commission with spread, divide it by the pip value per lot:

$7 round turn is 0.7 pips on EUR/USD ($10 a pip) but 1.05 pips on USD/JPY at 150 ($6.67 a pip). The same commission is relatively more expensive on instruments with a lower pip value.

Accounts held in other currencies are often charged commission in the account currency (€3 or £2.50 per side, for example), so check which currency a rate is in before comparing brokers.

Adding spread and commission in pips gives a single figure you can compare:

In this example the commission account is cheaper per trade, but the result depends on the spreads you actually get and on the instrument: on USD/JPY at 150, a $7 commission is 1.05 pips on its own. Compare like with like (the same instrument at the same time of day) and always include commission in pips.

Costs scale with volume. Twenty one-lot EUR/USD trades a month at 1.9 pips all-in cost $380 a month, or $4,560 a year, before swap. For an active trader the cost line can easily be larger than the eventual profit, which is why small differences in spread matter.

Because costs are paid whether the trade wins or loses, a position has to move in your favour by the all-in cost before it makes anything. Measured from the chart (bid) price at entry:

Long EUR/USD at 1.10000

Short USD/JPY at 150.000

A quick sanity check: the cost of a one-lot USD/JPY trade should be in the tens of dollars. If a calculation produces a cost in the thousands, the yen amount has not been converted into dollars.

The same 1.9-pip cost means very different things depending on the size of the move you are trading:

The calculation treats costs as making every loss larger and every win smaller: with a 10-pip stop and a 20-pip target, a loss costs 11.9 pips and a win nets 18.1 pips, so the effective ratio is 1.52 and the break-even win rate is 1 ÷ 2.52 = 39.7%. This is why scalping strategies are so sensitive to spread and commission, and why a strategy that looks profitable in a backtest without costs can lose money live.

A leveraged forex position held past the daily rollover is, in effect, financed overnight. The swap reflects the interest-rate difference between the two currencies plus the broker's markup. It can be a charge or a credit, and the long and short swaps on the same pair are usually different; once the markup is included, both are often negative.

Brokers quote swaps in three ways.

In points (MT4/MT5)

A point is the smallest price increment: 0.00001 on EUR/USD, 0.001 on USD/JPY. A long EUR/USD swap of −6.5 points on 1 lot is −6.5 × 0.00001 × 100,000 = −$6.50 per night. On USD/JPY, +10 points is 10 × 0.001 × 100,000 = ¥1,000, or +$6.67 at 150.

In money per lot

Some platforms show the swap directly as an amount per lot per night in the account currency, such as −$6.50. Multiply by lots and nights charged.

As an annual percentage (CFD style)

Many CFD brokers charge financing as an annual rate on the position's notional value, usually a benchmark interest rate plus or minus a markup, applied per night.

One lot of gold at $4,000 is $400,000 of notional. At −5% a year, the charge is $400,000 × 5% ÷ 365 = −$54.79 per night, or −$383.56 for a Monday-to-Friday hold charged as seven nights. Some brokers divide by 360 rather than 365, which makes the nightly charge slightly higher. On long-held gold and index positions, financing can dwarf the spread.

Triple swap

Spot forex settles two business days after the trade date, so a position held through Wednesday's rollover is financed over the weekend and charged three nights at once. For an instrument with a Wednesday triple, five rollovers from Monday to Friday are charged as seven nights. CFDs on indices and commodities often apply the triple charge on Friday instead; check the symbol's specification.

Swap-free (Islamic) accounts at many brokers replace swap with other charges, such as a fixed administration fee after a set number of days; read the terms before assuming they are cheaper.

Costs behave differently depending on how long a trade lasts. Spread and commission are paid once; swap accumulates every night. Here is a 0.5-lot long EUR/USD position on a raw-spread account, opened on Monday and closed on Friday, so it is held through five rollovers including Wednesday's triple.

For a trade held a few minutes, the spread and commission are the whole cost. For one held a week, the swap is about five times the spread and commission combined. When comparing brokers for swing or position trading, compare swap rates as carefully as spreads.

Every cost is earned or charged in some currency and then converted into your account currency, exactly like profit and loss. The spread on EUR/USD is paid in dollars because the pair is quoted in dollars, so for a EUR account it is converted at the EUR/USD rate: 1.2 pips × €9.09 per pip = €10.91 per lot at 1.10, rather than $12.

Commission may be set in the account currency (for example €3 per side on a EUR account) or in US dollars and converted. Swap in points is earned in the quote currency and converted; swap quoted as a money amount is usually already in the account currency. If your account is not in dollars, check which currency each figure on the broker's specification page is quoted in before adding them up.

Holding an account in a currency you don't spend also creates a conversion cost on deposits and withdrawals, and currency risk on the balance itself. Neither shows up in any trading calculator.

• Slippage: the difference between the price you requested and the price you got. It can be positive or negative, but on stops and in fast markets it is mostly negative.
• Currency conversion: deposits in a different currency from the account, or profits earned in a currency other than the account's, may be converted at a marked-up rate.
• Non-trading fees: withdrawal, inactivity and card-payment fees.
• Guaranteed stop premiums: where offered, charged when the stop is placed or when it is triggered.
• Swap changes: swap rates follow interest rates and are set by the broker, so the rate you see today may not apply next week.

Our methodology page lists what the calc.forex calculators model and what they don't.

• Know your all-in cost in pips for each instrument you trade, and compare it with your typical stop.
• Where your strategy allows, trade in liquid hours. For European and US pairs, spreads are usually narrowest when the London and New York sessions overlap.
• Match the account type to your volume. Raw-spread plus commission often suits frequent traders and spread-only accounts suit occasional ones, but run the numbers on the instruments you actually trade.
• For positions held for weeks, check the swap before you enter. It can be the largest cost of the trade.
• If a trade with a negative swap doesn't need to be held through the triple-swap night, closing before that rollover avoids three nights of charges.