Transaction Costs
Most FDMs do not have separate commissions or other fees per transaction, but this will be decided at each FDM. Instead FDMs make money through the spread that they make on each side of the transaction (i.e. they buy the currency for less than they sell it to you). The pip spread actually works as a kind of transaction cost, for more on this see http://www.babypips.com/school/how_leverage_affects_transacti.html.
Transaction costs vary from FDM to FDM. You should consider:
- Commissions. If there is a commission, add it to the spread to determine total cost. Also, you need to determine whether the commission is calculated on a per side or round trip basis.
- Spread on currency pairs. This is the value of the pip multiplied by the spread (pip X spread). The spread may fluctuate throughout day, based on the FDM.
- Rollover rates. These are important for longer term strategies (and are not necessarily important for day traders).
- Quality of execution, including slippage and the consistency of rates versus other platforms.
→ NOTE:
http://www.aboutcurrency.com/university/fxvideocourse/how_to_evaluate_forex_transaction_costs.shtml
Study Guide >> Forex Trading Calculations >> Transaction Costs
One Comment
Though many FDMs may not charge a commision, most institutional banks and liquidity providers charge a commission quoted in dollars per million and give direct access to the bid and asks spreads at which others are willing to buy or sell a given pair. Different liquity providers can offer differnt costs depending upon volume being transacted. One should always consider their cost of trading vs. their volume in relation to slippage. It may cost more to add liquidity but if the added liquidity prevents slippage the added cost per million traded may be made up in fills.