The real cost of trading

A trader who breaks even on the market can still lose a fifth of the account in a year. The difference is costs, and they are easy to total.

Three costs, one number

Position (lots)Spread (pips)Commission ($ per lot, round turn)Swap ($ per lot, per night)Nights held

Spread

Commission

Swap

Total cost of this trade

Spread = pips × $10 × lots. Commission and swap are quoted per lot. A trade must earn more than the total before it makes anything.

• The spread is paid on every trade, at entry.
• The commission, if any, is charged per lot, usually quoted round trip (open and close together).
• The swap is overnight interest, charged or paid each night the trade stays open. On many pairs it is negative in one direction and small or positive in the other. Over a weekend, three nights are usually charged at once.

The stack above adds the three for a single trade. A trade must earn more than that before it earns anything.

Over a year

Trades per weekSpread (pips)Trade sizeMicro lot (1,000)Mini lot (10,000)Standard lot (100,000)

Per trade

Per week

Per year (48 weeks)

Spread cost = spread in pips × pip value for your trade size. It is paid on every trade, whether it wins or loses.

On a $3,000 account, $600 of annual spread is a 20% hurdle before any profit.

Costs also change through the day. The same pair that costs 0.8 pips during the London–New York overlap can cost 3 pips at midnight. Trading in liquid hours is a cost decision as much as a strategy decision.

Quick check

1. Question 1 of 3

   A trade on 0.5 lots: spread 1.4 pips, commission $6 per lot, swap −$5 per lot per night, held 4 nights. Total cost?

   A$20B$12.40C$40

Go deeper: Forex trading costs explained: spread, commission and swap · What Is Swap in Forex? Rollover and Overnight Fees Explained