Types of trading costs
- Spread: the difference between the buy and sell price. You pay it on every trade. It usually does not appear as a separate column in your history; it is built into the price you got.
- Commission: a fee per trade (or per lot). Some account types charge it and some do not.
- Swap: money you pay (or receive) when you hold a position overnight. Some accounts have no swap, for example accounts for traders who avoid interest for religious reasons. Some of these accounts charge a different fee instead, so check your account’s terms.
- Other costs: fees for deposits and withdrawals, or currency conversion when you deposit or withdraw in a currency different from your account currency. Some of these are charged by your broker, and some by your bank, card company or money transfer service.
For the meaning of these words, see the forex glossary.
How to count from your history
- Choose the period: for example, from the first to the last day of last month.
- Count your trades: the number of trades you closed in that period.
- Add up commission and swap: trading platforms often show them as columns in your history (MetaTrader 5 also has a separate “Fee” column). Write down the totals for the period. Add any deposit, withdrawal or conversion costs too, including those charged by your bank or card company.
- Estimate the spread part: spread cost per trade × number of trades. To get the cost per trade, enter your lot size, and enter the spread (in pips) as the move, in the pip value calculator.
- Add it all up and compare with your balance: total costs ÷ balance at the start of the month × 100 (%).
Spreads change with the time of day and market conditions, so this is a rough estimate.
- 0.1 lots (10,000 units, if 1 lot is 100,000 units) of EUR/USD, 1-pip spread, USD account → about 1 USD of spread per trade
- 200 trades a month (for example, 10 trades a day for 20 days) → about 200 USD of spread
- On an account with a commission of 5 USD per lot (100,000 units) round trip (opening and closing) → 0.1 lots × 5 USD × 200 trades = 100 USD
- If your total swap is −20 USD → total costs are about 320 USD (if your swap total is positive, subtract it from your costs instead)
- With a balance of 5,000 USD at the start of the month → 320 ÷ 5,000 = about 6.4%
- The same spread in a EUR account (at an example rate of 1 EUR = 1.10 USD) → about 0.91 EUR per trade, about 182 EUR for 200 trades
The calculation works the same way in any account currency. The same costs are a larger share of a smaller balance, so the percentage matters more than the amount. Commissions and spreads vary a lot by broker, account type and time of day.
What counting shows you
Costs grow almost in step with your trade count
If each trade costs about the same, twice as many trades means about twice the cost. Seeing how much your costs went up in a busy month can also help you notice overtrading.
Your break-even win rate goes up a little
With costs, the win rate you need to break even is a little higher than without them. For example, suppose you buy, with a target 20 pips above and a stop 20 pips below your entry on the chart (MT4/MT5 charts usually show the bid price; for other platforms, check their help). You buy at the ask price, which is higher by the spread, so with a 1-pip spread your actual result is a 19-pip gain or a 21-pip loss. Your break-even win rate rises from 50% to 52.5% (21 ÷ (19 + 21); a calculation example). In the break-even win rate calculator, enter 19 ÷ 21 (about 0.905) as the reward : risk ratio to get the same 52.5%.
Swap adds up with the days you hold
On trades you hold for many days, total swap can become large. The swap calculator shows the amount for the nights you hold.
What is known (briefly)
FINRA, a US self-regulatory organization for brokers, warns that frequent trading can come with higher costs that might erode your returns.[1] It is written about stocks and other securities, but forex also has a cost on every trade.
Counting your costs will not improve your results by itself. Still, it shows you numbers you could not see before, and it can be a starting point for reviewing how often you trade and how long you hold.
Sources
- FINRA. Frequent Intraday Trading: Understanding the Basics. https://www.finra.org/investors/investing/investment-products/stocks/day-trading