Exploring the Hidden Costs of Forex Brokers: What Every Trader Should Know

When you begin trading the foreign exchange market it’s really easy to be drawn into the promise of the slick platform and some of their fantastic features when it’s time to choose a foreign exchange broker. But the truth is, many new traders don’t realize that the true costs of trading can run well beyond the obvious fees. If there are hidden costs that relate to forex brokers eating into your profits or adversely affecting your entire trading experience, then that’s something to consider.

The spread is one of the first hidden costs you have to consider. Brokers make their money from the spread; which is the difference between the buy and sell price on a currency pair. The spread is usually clear as to cost, but is not always clear as to how big it is. The amount it can vary will depend on the broker and the liquidity of the market. If you’re trading regularly or taking small positions, those spreads can quickly stack up, particularly during times of high volatility. This means that what might look like a cheap broker on the surface could actually be more expensive in the long run thanks to wider spreads.

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Slippage is another cost that traders don’t often factor in. Slippage is what happens when the price of an asset changes between the time you place an order and when it’s executed. Slippage will occur in fast moving markets and while it more commonly occurs in fast moving markets, slippage can occur in any Forex broker. While appearing to have low spreads, a broker may actually charge you an unexpected cost despite what you expected, because the execution price delivered to you does not equal what was advertised during periods of high volatility. It can be doubly frustrating to traders who need exact entry and exit points for their strategies.

Spreads and slippage are not the only charges you are paying your forex broker; some will impose additional fees on you. This includes withdrawal fees, inactivity fees as well as fees for using certain payment methods. These fees aren’t immediately obvious but if you are withdrawing or trading often, these are fees you can rack up over time. Make sure to read the fine print in your broker’s fee schedule so you don’t get shoehorned with a charge you didn’t expect down the road.

Traders like forex brokers with the high leverage which means they can use a very small amount of deposit to control a large amount of positions. Leverage can make profits larger, while making losses larger. The cost of using leverage can get very expensive if you’re not careful. In addition, you can suffer some extra interest charges on leveraged positions that may be added on a daily or weekly basis, which will add to your total costs.

Finding a reliable forex broker is important, but so is uncovering as much as we can about the hidden costs associated with any such broker. Once you take into account the broker’s spreads, slippage, hidden fees, leverage, and customer support quality you can be sure that the broker you select matches your goals and won’t eat into your profits.