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What is a Commission?

Commission Definition. A Commission is a transaction fee charged by a broker. There are three forms of commission used by brokers in forex. Some firms offer a fixed spread, others offer a variable spread and still others charge a commission based on a percentage of the spread. Intuitively, it may seem that the fixed-spread broker may be the right choice, because then you would know exactly what to expect. In the case of a forex broker who offers a variable spread, you can expect a spread that will, at times, be as low as 1.5 pips or as high as five pips, depending on the currency pair being traded and the level of market volatility. Your forex broker’s effectiveness will also depend on how much volume he does with his bank. Higher-volume forex brokers are generally quoted narrower spreads. To get the best deal possible, choose a reputable broker who is well capitalized and has strong relationships with the large forex banks. Check out the spreads on the most popular currencies. Very often, they will be as little as 1.5 pips. If this is the case, a variable spread may work out to be cheaper than a fixed spread, as long as service levels are acceptable. In the end, the cheapest way to trade is with a very reputable market maker who can provide the liquidity you need to trade well.


Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.