Most forex brokers advertise tight spreads and, often, commission-free trading. Few explain what those numbers actually cost over a year of regular activity. Spreads and commissions are the two primary ways a broker gets paid, and understanding how each one works is the fastest way to tell whether a quoted price is genuinely competitive or just marketed well.
What Is a Spread?
A spread is the difference between the bid price and the ask price quoted for a currency pair. The bid is what a trader receives when selling; the ask is what a trader pays when buying. That gap, usually measured in pips, is built into every trade before the market moves a single point in the trader’s favor.
On EUR/USD, a quote of 1.0850 bid and 1.0851 ask reflects a one-pip spread. On a standard lot of 100,000 units, that pip is worth roughly $10, meaning the trade starts $10 behind the moment it is opened. Spreads exist on every liquid market, and they compensate whoever is supplying liquidity for the risk of holding the other side of the trade.
Fixed vs Variable Spreads
Fixed spreads stay the same regardless of market conditions, which makes cost easy to predict but often means paying slightly more during calm sessions to subsidize consistency during volatile ones. Variable spreads move with liquidity: they can be extremely tight during major trading hours and widen sharply around news releases or during thin, low-liquidity periods such as the early Asian session.
Traders who hold positions briefly and trade often feel spread costs more directly than swing traders, since the cost is paid on every single entry and exit regardless of how long the position stays open.
What Is a Commission?
A commission is a separate, fixed fee charged per trade, usually calculated per lot or per $100,000 traded, and disclosed independently of the spread. Brokers that charge commissions typically offer tighter, closer-to-raw spreads sourced directly from liquidity providers, since the commission is where the broker’s compensation comes from instead of a marked-up spread.
A typical structure charges around $3.50 per $100,000 traded per side, meaning a round trip trade, opening and closing the position, costs about $7 in commission before any spread cost is added.
Spread-Only vs Commission Pricing: Calculating the Real Cost
Comparing a spread-only account against a commission-based account means adding up the full round trip cost, not just the number shown on the platform. FINRA’s guidance on retail forex trading points out exactly why this comparison is difficult: some firms charge per-trade commissions, others build the cost into a wider spread, and some do both, which makes a broker’s true cost hard to judge from a single advertised figure.
A worked example makes the difference concrete. On a one standard lot EUR/USD trade, a spread-only account quoting a 1.2 pip spread costs about $12 per round trip. A commission account quoting a 0.1 pip raw spread plus a $7 round trip commission costs about $8 total. The commission account is cheaper here despite sounding like it charges twice, because the raw spread it offers is so much tighter.
Why Spreads Widen During Volatile Markets
Spreads are a function of liquidity. The foreign exchange market handled $9.6 trillion in average daily turnover in April 2025, and that liquidity is what keeps spreads tight during active trading hours. Liquidity is not distributed evenly throughout the day, though. It concentrates when major financial centers overlap and thins out overnight or just ahead of scheduled news events, which is exactly when spreads on variable-spread accounts widen the most.
A trader who only checks a broker’s spread during a quiet mid-morning session gets an incomplete picture. The spread that matters most is the one available during the hours a specific strategy actually trades.
Other Costs That Hide Inside a Trade
Spreads and commissions are the headline costs, but several other charges affect the total.
- Overnight financing, or swap or rollover, is an interest rate differential charged or paid for holding a position past a set rollover time, applied daily including weekends
- Currency conversion fees apply when trading a pair that does not match the account’s base currency, typically a small percentage markup on the conversion
- Inactivity fees are charged after a set period without trading activity and erode a balance regardless of market performance
- Withdrawal fees vary by payment method, with wire transfers commonly carrying the highest charge
None of these show up in a headline spread figure, which is exactly why they catch beginners off guard.
How to Compare Total Cost Across Brokers
A fair comparison needs a consistent method rather than a glance at advertised numbers. Pick one currency pair and one lot size, then calculate the round trip cost at a typical hour and again during a volatile session, such as a major data release. Add the overnight financing cost for a realistic holding period, then check the inactivity and withdrawal fee schedule in the account terms. Running the same calculation on a demo account before funding a live one confirms that real execution matches what was advertised.
Frequently Asked Questions
Is commission-based pricing always cheaper than spread-only pricing?
Not always. It depends on the raw spread offered alongside the commission and how often a trader opens and closes positions. High-frequency traders often save with commission accounts, while occasional traders may barely notice a difference.
Do spreads and commissions apply no matter how short the hold time is?
Yes. Both are charged the moment a position opens, whether it closes one second or one month later. Only overnight financing depends on how long a position stays open.
Why do two brokers quote different spreads on the same pair at the same moment?
Spreads depend on which liquidity providers a broker connects to and how much markup, if any, gets added to the raw price. Brokers with deeper liquidity access and smaller markups typically show tighter spreads.
Bringing the Cost Picture Together
None of these figures mean much in isolation. A tight spread paired with a high commission can cost more than a wider spread with no commission at all, and a broker that looks cheap during quiet hours can turn expensive the moment volatility picks up. Working out the full round trip cost, including financing and account fees, before committing real capital is the only way to know what a broker actually charges rather than what it advertises.