4/23/2024

Trading commissions: how do they work?

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Commissions are an integral part of trading. Look at them from the outside: commissions are payment for the work of intermediaries for the opportunity to trade on the exchange quickly, safely and, as a result, with greater benefit for themselves. In any case, in order to properly balance the pros and cons of choosing a broker or asset to trade, you need a clear understanding of the main types of commissions in the market.

Spreads

A spread is the difference between two prices: the purchase price (Bid) and the sale price (Ask) of an asset – for example, shares or cryptocurrencies.

Let’s say you want to trade in gold. Bid price: $1696.90 per ounce and sale price: $1703.10. The difference between them is $6.2 per ounce – this is the spread. It is important that, according to market rules, once you sell a share, you cannot buy it back immediately at the same price.

Spreads exist in all markets that trade securities and other financial instruments. The more liquid the asset, the lower the spread. Thus, the size of the spread depends on how easily and quickly the asset can be bought or sold. For example, shares of large companies tend to be more liquid than shares of small companies. Spreads affect your costs when buying or selling an asset.

The larger the spread, the more you will pay for the trade. As a rule, spreads contain two main components, which apply to both purchase and sale:

  • spread from the liquidity provider;
  • broker spread.

Spreads, in turn, are divided into different types. For example, fixed spreads are always the same, regardless of market conditions. Floating spreads may change depending on market volatility and other factors.

Swaps

Swaps are fees that traders pay to roll over open positions to the next day. They, in turn, depend on the interest rates set by the central bank of a particular state.

For example, this is relevant in currency pairs; the difference in interest rates of the central banks of the countries whose currencies are traded in the pair is important. At the moment, refinancing rates for major currencies are close to zero. For example, for the dollar it is 0.25, for the euro – 0.1, for the pound – 0.1.

Refinance rates are publicly available. If a broker claims that he takes swaps based on the cost of a pip, which is equal to GBP/USD and EUR/USD, then he is deceiving the client. The difference in swaps can only be explained by a difference in volume, since 100,000 British pounds is 10% more than the value of 100,000 euros.

Brokerage commissions

Commission is a fee for servicing clients by a broker on its platform. This is the main source of income for brokerage companies. Commissions vary widely from broker to broker depending on the specifics of the platform and the services the broker provides. This is why it is important to take into account the cost of commissions when determining profits and losses on asset transactions, which can significantly affect the funds you receive.

Transaction fees. First of all, these are broker commissions for depositing and withdrawing funds from a trading account.

Commission for concluding a transaction. Thus, the broker charges a fee for providing services on their platform when you buy or sell an asset.

Commission for trading accounts. Some companies also charge a fee for using a trading account on the platform – even if you don’t trade for a certain period of time. This can be either a fixed amount or a percentage of assets under management.

ParadTrade is a broker with minimal and transparent commissions

Of course, every trader strives to choose a broker without unnecessary additional payments, which is especially important for beginners who start their journey with small amounts. No wonder many of them choose ParadTrade! After all, we provide our clients with access to trading stocks, indices, commodities, cryptocurrencies and currency pairs on a convenient platform and without hidden commissions.

Commissions that are not used on ParadTrade:

  • For transactions – take advantage of our promotion for deposits and withdrawals without commissions.
  • For using a trading account.

Fees that ParadTrade charges:

  • Spreads. With the company you can open an account with fixed spreads.
  • Swaps. However, we also have swap-free accounts available.
  • Commissions for making deals.
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