How Much Forex Trading Commission Fees Fairly?
One of the advantages of Forex compared to other investment assets is the ease can transact anywhere and anytime. In this case, the role of forex broker is irreplaceable. The broker connects the public to the forex market and provides the tools needed to transact online, in exchange for commission and spread fees paid by traders from each transaction. However, the rules about commissions vary for each broker. What is the actual cost of forex trading commissions reasonable?
The trading commission is a quote of transaction fees paid by the trader to the broker for each lot traded. For traders, the commission trading fee cut is actually a normal expense, as is the case for a business that would need to bear the burden of overhead and so on. As for brokers, other than as part of the income also to pay trading commissions to liquidity providers and technology providers.
Eh, so, brokers also pay commissions? Yes. In the forex market structure, brokerage positions are under the banks of liquidity providers. Multinational banks that are actually associated with the interbank network where the price in the forex pair-pair is formed. In return for linking the broker to the price, the liquidity providers ask for a commission. Moreover, brokers also need to work with technology providers to facilitate online forex trading, and this is not free. Well, the commission fee traded “brokered” by the broker to the client, so in the end the client must pay trading commissions in certain amount each time the transaction.
Based on that market structure, a team from Boston Technologies, one of the leading online trading technology providers, outlines the range of reasonable forex trading commission fees on a forex broker based on the type of broker:
Prime Broker is a seasoned Forex trader like Goldman Sachs and Morgan Stanley, usually serving institutional traders including Hedge Funds.
Brokers PoP (Prime of Prime) serves retail traders by dealing directly with liquidity providers. Many of the PoP brokers promote themselves as ECN / STP / DMA brokers, such as IG Markets, Pepperstone, Dukascopy, Varengold, IC Markets, Saxobank, and others.
STP brokers (Straight Through Processing) have a Prime of Prime-like character and can be somewhat confusing to distinguish between them without knowing the business aspect, especially since many STP brokers refer to themselves as ECN / STP model brokers.
Meanwhile, DD brokers (Dealing Desk) are usually nicknamed “broker bandar” in Indonesia. In contrast to other types of brokers, DD brokers “create” their own markets and do not really channel trader orders into the market.
Transaction fees in Prime Brokers tend to be low due to the high daily trading volume and the size of their deposit / margin terms. Thus, from the table it can be concluded that the smaller the deposit requirement and the smaller the trading volume allowed by a broker, the higher the commission cost-with the exception of the DD broker.
DD brokers do not distribute orders to liquidity providers, so according to Boston Technologies, there should be no burden of commissions. That is why DD brokers can eliminate trading commission fees for their clients. However, STP brokers can also free traders from this forex transaction fee, by transferring commission expenses to the spread of spreads (mark-up).
In the midst of intense brokering competition today, brokers try to lower the cost of forex trading commissions and spreads as low as possible in order to attract more clients. Boston Technologies notes that in 2005, trading commission fees for 1 million EUR / USD (10 standard lots) reached $ 200 per side, or in other words, traders had to pay a commission of $ 20 per lot.
The trend of decreasing commission trading costs is certainly profitable for traders. However, since commissions are an integral part of the market structure, there will always be a commission trading fee; or even if the broker can eliminate commission fees, there will be a higher spread burden.