Forex: Extra Charges to Consider

Filed under: Learn Forex Trading |

Picture 2When trading forex, there are a number of hidden charges that need to be considered that could affect your bottom line profit and loss figures. One of these is something in your MT4 platform labelled the ‘SWAP’. The SWAP is a daily interest rate that is earned or charged, depending on whether you are buying or selling the currency. It is my general feeling that these charges will even out in the long term and thus, it is not really an issue for me. However, if you run a system that only takes long or short trades, then this could have a big impact on your trading figures.

 

Hedging systems could also be created using the SWAP figures. For example, you could choose two currencies that move in very similar ways, taking a long position in one and a short position in the other. If the long SWAP is greater than the short SWAP, then there could be an edge there to exploit.

 

Another thing to consider is that of broker commissions. Some brokers charge a commission for trading, and others do not. This is something that needs to be looked into, as commissions could be the difference between a profitable trading system and a loser.

 

Of course, spreads eat away at large chunks of your profits as well, and this is perhaps the main thing to consider when choosing a broker. Spreads are how the broker makes their money, and although they might sometimes seem irrelevant to the beginner trader, over a long series of trades, these costs add up and can have the potential to wipe out any profitable edge that is present. A system can be incredible when not taking into account the spreads, and it can be a loser once the spread come into play. This is the significance of the spread, and it is another hidden cost that should not be ignored.

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