Forex trading has become increasingly popular over the years, thanks to its accessibility. As with any type of trading, however, it’s important to consider the costs involved. One of the major considerations when trading Forex is whether to opt for a commission or non-commission trading.
Commission trading involves paying a fee to the broker for every trade you make. Non-commission trading, on the other hand, does not charge a fee but instead builds the cost into the spread. Both options have their own advantages and disadvantages which can make it difficult to decide which one is the better option. In this article, we will explore the differences between Forex commission and non-commission trading, as well as the factors to consider when making a decision.
Forex Commission Trading
- Forex commission trading refers to the practice of paying a fee to the broker for every trade that you make. This fee is usually a fixed amount or a percentage of the trade size.
Pros
- Tighter Spreads: Since the broker makes money through commission fees, they can offer tighter spreads to traders. This means that the difference between the bid and ask price is smaller, which can be advantageous for traders.
- Better Trading Conditions: In commission trading, brokers may offer better trading conditions such as faster execution, higher leverage, and access to more advanced trading tools and platforms.
- Better Transparency: Commission trading offers more transparency as traders know exactly how much they are paying in fees for each trade. This allows traders to better manage their costs.
Cons
- Higher Costs: The fees charged by brokers for commission trading can add up over time and may eat into a trader’s gain. This is especially true for high volume traders.
- Difficulty in Predicting Trading Costs: Since commission fees are based on the size of the trade, it can be difficult to predict how much you will pay in fees for each trade. This can make it challenging for traders to manage their costs effectively.
Forex Non-Commission Trading
- Forex non-commission trading, also known as “spread betting,” involves incorporating the cost of trading into the spread instead of charging a separate commission fee.
Pros
- Lower Costs: Spread betting typically has lower costs compared to commission trading since traders don’t have to pay a separate fee for each trade.
- Easy to Understand: Non-commission trading is easy to understand since traders only need to focus on the spread between the bid and ask price.
- Predictable Trading Costs: Since the cost of trading is incorporated into the spread, traders can predict their trading costs more easily. This can help them manage their costs and make informed trading decisions.
Cons
- Wider Spreads: Since the broker makes money through the spread, they may offer wider spreads to traders. This means that the difference between the bid and ask price is larger, which can reduce a trader’s potential.
- Poorer Trading Conditions: In non-commission trading, brokers may offer poorer trading conditions such as slower execution, lower leverage, and access to less advanced trading tools and platforms.
- Lower Transparency: Non-commission trading offers less transparency as traders may not know exactly how much they are paying in trading costs. This can make it challenging for traders to manage their costs and trades effectively.
How to Decide Which Type of Trading is Right for You
When deciding whether to choose Forex commission or non-commission trading, traders should consider the following factors:
- Assessing Your Trading Style: Consider your trading style and frequency. If you are a high-volume trader, commission trading may be more cost-effective in the long run. However, if you prefer to trade less frequently, non-commission trading may be more suitable.
- Evaluating Your Budget: Consider your budget and how much you are willing to pay in trading costs. If you have a limited budget, non-commission trading may be a better option since it typically has lower costs.
- Considering Your Trading Goals: Consider your trading goals and the level of risk you are willing to take. If you are a risk-averse trader, non-commission trading may be more suitable since it offers predictable trading costs. However, if you are comfortable with higher risks, commission trading may offer more potential for gains.
It’s important to remember that the decision to choose Forex commission or non-commission trading is not a one-size-fits-all approach. Each trader’s needs and goals are unique, and the choice of trading type should be based on careful consideration and analysis.
Conclusion
Forex commission and non-commission trading both have their own advantages and disadvantages. While commission trading offers tighter spreads and better transparency, it also has higher costs and can be difficult to predict trading costs. Non-commission trading, on the other hand, offers lower costs and predictable trading costs, but also wider spreads and lower transparency. When deciding which type of trading to choose, traders should consider their individual needs, goals, and trading style.
Traders should also be aware that some brokers may offer both commission and non-commission trading options. In such cases, it may be beneficial to try both types of trading and evaluate which one works better for their specific situation.
If you are looking for a forex broker with low commission fees, IC Markets would be my top choice. They have low fees, tight spreads and fast trade execution speeds. This along with excellent 24/7 support makes them one of the best forex brokers in the industry.
Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading! Read more about me.
