What fees are associated with forex trading

Forex basic knowledge

In every area of ​​financial investments there are fees that have to be paid to the respective intermediary or provider. In forex trading, the trader has an interbank network available through which he can process his orders. A forex broker (i.e. a forex account provider) takes on the role of a service provider in this context, who of course wants to be rewarded for his service (handling of orders placed on behalf). And it is precisely this remuneration that takes place via the submission of fees or processing costs.

Forex fees lower than stock trading
If you now compare the two most popular investment options in the modern world, i.e. forex and stock market, one of the most important differences becomes quickly apparent. The forex offers the most obvious difference and advantage right here. The costs are significantly lower compared to the stock market, which may explain the attraction of Forex to many interested investors.

Example of fees on the stock exchange
Here is an example: The average cost of trading stocks is between 0.1 and 0.6 percent of the amount traded. If a stock exchange trader now trades with a sum of, for example, 10,000 euros and pays 0.5 percent of this as a fee, costs of around 50 euros arise for our example. Not a large sum at first glance. It may seem that way at first. If we now assume that the stock exchange trader has made a good choice and his profit within the 10,000 euros amounts to 500 euros, it becomes clear that 10 percent of the profit must be paid as a fee. In the long run, the possibility of high profits is weakened, since the tenth part of it is deducted.

Calculation example for fees in Forex
Such a commission, as it is levied on the stock exchange, does not exist in forex trading. The costs of trading forex are only a fraction of those of the stock exchange. On average, the forex broker will have to pay a fee of around 0.006 percent to its service provider per traded position. Expressed in euros, these are just 60 cents, which must be paid. If the forex trader also trades with a sum of 10,000 euros and receives the same profit as the exchange trader, i.e. 500 euros (very unlikely), the fees in relation to the profit achieved are only 0.5 percent. The size difference is very clear and you can see that Forex is one of the cheapest investment opportunities that currently exist.

Behavior of leverage and fees
Another very striking difference between the two investment options is the amount of capital that must be in the trader's possession at the time of trading. In the example above on the stock exchange, the trader will have risked the entire 10,000 euros to win 500 euros. Not so with Forex. Because of the ability to trade with leverage, the outlook and factors involved in Forex are entirely different. The forex trader does not have to have the full 10,000 euros within the use of the lever in order to be able to trade it.

Within the example with 10,000 euros and a margin (leverage) of one percent, the forex trader is only obliged to have one percent of the 10,000 euros in his account at the time of trading. That means just 100 euros. In this context, 100 euros is also the amount that can be lost or won, for this reason the above note in brackets that a profit of 500 euros is unlikely. But it is not impossible! The 100 euros that the forex trader must have deposited represent, on the one hand, the margin, i.e. a certain percentage of the amount to be traded, and, on the other hand, a security deposit, such as in credit transactions. The forex trader could lose 100 euros, so must also have it in order to be able to transfer it to his provider in the event of a loss, who then ends the transaction or, to stay in the technical jargon, closes the position.

My conclusion on the forex fees
Within the example given above, it must be clear to every interested investor that the advantages in the area of ​​fees are more in Forex than in the stock market. For this reason, the Forex has experienced an upswing in recent years, which has been to the disadvantage of the stock market and the trend does not seem to break off.