The Two Cost Models in Forex
Every forex broker charges you in one of two ways — or a combination of both:
1. Spread-only (no commission): The broker makes money from the difference between the buy and sell price. EUR/USD might be 0.8 pips wide instead of the raw 0.0–0.1 pip interbank rate.
2. Raw spread + commission: You get near-interbank spreads (0.0–0.1 pips on EUR/USD) but pay a fixed commission per lot traded — typically $3.00–$7.00 per lot round-turn.
The Real Math — 100 Trades Example
Let's say you trade 1 standard lot (100,000 units) of EUR/USD, 100 times.
Spread-only broker (eToro — 1.0 pip spread):
- 1.0 pip x $10/pip x 100 trades = $1,000 total cost
ECN broker (Pepperstone Razor — 0.1 pip + $7 commission):
- Spread: 0.1 pip x $10 x 100 = $100
- Commission: $7 x 100 = $700
- Total: $800
Winner: ECN/commission model — $200 cheaper over 100 trades.
When Spread-Only Wins
The math flips for very small traders or infrequent traders:
If you trade micro-lots (0.01 lot) or less than 10 trades/month, the fixed commission structure becomes disproportionately expensive. A $7 commission on a 0.01 lot trade represents a massive percentage cost.
Rule of thumb:
- Trading 0.1 lot or larger, multiple times per week: ECN + commission
- Trading micro-lots or occasionally: Spread-only
Hidden Costs to Watch
Beyond spread and commission, always check:
- Overnight swap rates (holding positions overnight) — see forex swap and rollover fees explained
- Inactivity fees (Plus500, eToro charge after months of no trading)
- Withdrawal fees (eToro charges $5 per withdrawal)
- Currency conversion fees (if your account currency differs from the instrument)
This article is for informational purposes only. Past performance is not indicative of future results.