What does a broker live on?

Forex brokers offer their services to traders in exchange for various types of fees and commissions. The most common costs include spreads, commissions and swaps. Each of these elements is critical to transaction costs and the overall profitability of the investment.

When offering access to the foreign exchange market, forex brokers charge different types of fees and commissions for their services. Although investing in the forex market is often advertised as low-cost, the sum of these costs can significantly affect the profitability of the trade. To manage your investments effectively, it is essential to understand what sources of income brokers use and how these fees affect traders. This topic has been thoroughly explored on Webinar Universe.

Spreads – spreads are the difference between the bid and ask price of a currency pair. They are one of the most commonly used sources of income for brokers.

• Fixed spreads – Brokers offering these types of solutions assure traders that the difference between the buy and sell price remains the same, regardless of market conditions. Such a model is especially popular among novice traders because it allows you to predict the costs of transactions;
• Variable spreads – In this case, the difference between the buy and sell price depends on the volatility of the market. For example, during the publication of macroeconomic data, spreads can increase significantly. This model is often used by brokers operating in the STP (Straight Through Processing) and ECN (Electronic Communication Network) models.

Swaps – swaps are the costs associated with keeping positions open overnight (so-called rollover). They depend on the interest rate differential of the currencies in the pair that the trader is trading.

• positive swaps – occur when the interest rate of the currency being bought is higher than the currency being sold;
• Negative swaps – These occur when the currency being sold has a higher interest rate than the currency being bought.

• Percentage commission on trades – For brokers that offer zero spreads or very low spreads, profits are generated by charging a commission on the value of each trade. The percentage commission is popular among traders who prefer markets with high liquidity, where spreads can be very low. However, it is worth paying attention to how often trades are made, as commissions can significantly increase costs in the case of active trading. To understand this topic thoroughly, it is worth looking for online training available on training platforms such as Webinar Universe.

Other fees – in addition to the standard costs, brokers may also charge other fees that are not always immediately visible to investors. It is worth taking them into account when choosing a broker:

• Withdrawal fees - Some forex brokers charge fees for withdrawing money from your investment account;
• Inactivity fees - when a trader does not make a trade for a certain period of time, brokers may charge a so-called inactivity fee;
• Fees for access to additional tools and analysis – Some brokers offer additional services such as market analysis, access to advanced tools, or macroeconomic calendars.

Fair spreads...

Choosing a forex broker that offers fair and transparent conditions is extremely essential for long-term investment success. Fair practices in terms of spreads, commissions and swaps are characterized by transparency, no hidden costs and proper communication of these costs on the broker's website. Brokers that use variable spreads often offer low values under normal market conditions. However, in moments of high volatility, they can increase. It is important for brokers to disclose the range of spreads that may occur during different trading hours, as well as to inform you of the lowest possible spreads for specific currency pairs. Also, commissions should be clearly stated in the broker's terms and conditions. Brokers that offer zero spreads usually charge a commission for each trade. However, you should make sure that this commission is competitive and fair in relation to the terms offered.

Another important aspect is swaps. Honest brokers should offer transparency about swaps, telling investors what rates apply to different currency pairs. Understanding swaps allows a trader to make an informed decision on whether it is better to hold a position for the long term or close it during the day.

... and unfair spreads

Fraudulent brokers use various practices that can negatively affect investors. One of the most common scams is the unexpected widening of spreads during times of high market fluctuations. This can lead to unfavourable trading conditions and generate higher costs that were not included in the broker's initial offering.

Another example of fraudulent activity can be hiding costs in contracts or on websites. Brokers that offer low spreads but do not disclose other hidden fees (e.g., commissions, withdrawal fees, overactivity fees) can mislead investors. It is also worth watching out for brokers who manipulate prices in a way that is inconsistent with market standards. Such brokers can, for example, change prices during the execution of trades, resulting in additional losses for the investor.

Understanding the fee structure, such as spreads, commissions, and swaps, allows you to make informed investment decisions. Brokers that offer transparent conditions and low costs are a good choice, especially for investors who aim to optimize their profits and minimize their trading costs. This topic is covered in detail on Webinar Universe.