Table of contents:
Overview of all spreads & fees at FXCM
The conditions are certainly one of the most important points in a broker comparison, which can even be decisive for the choice of a broker. For this reason, we would like to say something in our guide in general about the costs and fees that could arise when trading with foreign exchange and CFDs. In addition, we also take a close look at the costs incurred by the broker FXCM. In order to give you as detailed a picture as possible of the costs you will incur if you wish to actively trade forex or CFDs, we will first list the most important cost factors below.
Spreads and commissions as cost factors
For the vast majority of Forex brokers, including FXCM, the cost to the client consists primarily of the spread and commissions that many brokers also charge. Many brokers make a difference in spreads and commissions depending on the account model the client chooses, if multiple alternatives are available. This is the case with FXCM, among others, which offers three different types of accounts to its clients: Mini, Standard, and Active Trader. The models differ not only in the minimum deposit required, but also in the cost the broker estimates. Many brokers follow this pattern, so it is rare for a currency pair to have uniform spreads that apply to every trader and all account types.
Extract from the spreads of the standard account at FXCM:
|Currency pair||Standard account spread|
As you can see, the spreads at FXCM are mostly very good. However, every trade here is subject to a commission in addition to the spread, which unfortunately pushes up the trading costs somewhat.
Thus, the following fees are incurred in Forex trading for example:
This means that in addition to the spread for trading 1 lot (100,000 units), a commission of 3 euros per order is charged. For buying and selling, this means an additional 6 Euro commission per round turn.
You will learn more about this later in this guide. In the end, however, the cost of trading EUR/USD will be around the level of IG or ActivTrades.
If you have not yet dealt with the topic of foreign exchange and CFD trading, we would like to explain briefly what the spreads are actually about. You have probably already noticed that, for example, with the currency pair Euro and US Dollar, two rates are always quoted, namely the buy rate and the sell rate. Most brokers quote two rates for each currency pair, which differ from each other. It is precisely this difference between the two rates that is the spread, which is an important source of income for many forex brokers. In particular, because there are usually no account management fees or transaction fees when trading CFDs and Forex, the spread is often the broker’s only source of income.
It’s important to know that the spread of almost every broker depends on the currency pair being traded. For example, while you can trade the best known and most commonly traded currency pairs, most of which involve either the US dollar or the euro, at low spreads of between 0.5 and 3.0 pips, less commonly traded currencies may well have spreads between 10 and 30 pips. As you can see, the size of the spread is expressed in pips. Simply put, a pip is the smallest change in a currency rate. In the case of Broker FXCM, the amount of the estimated costs (commissions) is not only based on the selected account model, but also on the currency pair that the client is trading.
Commissions and spreads as mixed cost factors
With some brokers, such as FXCM, there is another cost factor to consider besides the spread, namely the so-called commissions. More often, the broker either charges commissions or estimates spreads. More rarely, however, when trading a currency pair, for example, the client must consider both the spread and commissions as a cost factor. Relatively often, commissions are used instead of spreads, for example, in equity CFDs, but commissions are also quite often used in other trading areas.
However, FXCM does not charge markups, i.e., no additional markups on the spread, due to the commission model. As a result, traders can trade at FXCM’s brokerage firm at favorable spreads and low commissions.
Currently, for example, you can view an excerpt of FXCM’s live spreads, which are quoted for the major currency pairs, on the broker FXCM website. Here you can clearly see that the spreads sometimes start at the very low 0.2 pips for the popular currency pair Euro and US Dollar.
However, you can also see from this example that these are not fixed spreads, but that the FXCM Broker works with variable spreads.
Financing costs and fees for some payment methods
Two other cost factors that can basically be incurred by any Forex broker are, firstly, the financing costs and, secondly, the fees charged in the area of payment transactions. Financing costs are charged by virtually every Forex and CFD broker if you do not close an open position by late evening. The broker transfers the position to the next day, which is also known as rollover. Since this fact means that the broker has to provide the client with the capital he lent during the rollover for one more day, he charges interest on it, which is usually called financing costs. It is common for the amount of the financing costs to be based on certain official interest rates, such as LIBOR.
Additional costs may be incurred by some brokers when customers choose a particular payment method. For example, it is not uncommon for only a certain number of deposits or withdrawals per month to be free of charge, while other transactions are subject to a fee. However, many brokers do provide at least one free payment method, and FXCM is no exception. Here, you as a client have the opportunity to make both deposits and withdrawals by credit card free of charge.
Spreads and Commissions at Broker FXCM
As mentioned at the beginning, we would like to inform you not only about costs and fees in general, but also about the costs you should expect to incur if you choose FXCM as your Forex broker. The broker itself makes it clear on its website that clients can trade at extremely low forex spreads. In particular, FXCM emphasizes that traders do not pay a markup (premium on the spread), but instead work with low spreads and transparent commissions. In plain language, this means that FXCM passes on to its clients the spread that the broker receives from its liquidity providers. According to FXCM, the only income earned is the commission, which is payable in addition to the spread.
Commissions with FXCM:
Such low spreads, which start at as little as 0.2 pips for the euro and US dollar, for example, are particularly suitable for scalpers and traders who have a short-term speculative approach. Traders can trade the exact bid and ask prices of the respective liquidity provider with whom the broker FXCM works via the broker FXCM. For this reason, FXCM also emphasizes that many other brokers make their money particularly through markups, but the broker has deliberately chosen to use low spreads and transparent commissions.
Another advantage of the FXCM broker in terms of spreads and commissions is that all commissions are calculated exclusively in the currency in which the trading account is maintained. This eliminates conversions from two different currencies for the client, which can be another cost advantage. For example, if you have a trading account in US dollars, the commission will also be calculated exclusively in USD. Furthermore, it is certainly an advantage that the broker’s commissions are extremely transparent and no values have to be converted from one currency to another. How this looks like in practice can be illustrated very well with an example.
If you trade a volume of EUR 2,000 against US dollars, there is a charge of EUR 0.06 for opening the position and also EUR 0.06 for closing the previously open position. You can calculate exactly the same costs if, for example, you trade the same volume for the currency pair British pounds against US dollars, that is, 2,000 pounds. In this case, it will cost you 0.06 euro for opening the position and 0.06 euro for closing it. This means that you do not have to make any complicated currency conversions, but you will know immediately, expressed in your own currency (Euro), what the total costs of the transaction will be.
A special offer from the broker FXCM is also the Active Trader program. This program rewards particularly active clients by offering even lower commissions. For the customer, this means: The more they trade, the lower the commissions. With regard to financing costs, all positions that are still open at 5 pm New York time are carried over to the next day. This is the so-called rollover, which is associated with financing costs for the customer if it is a long position (purchase position). The broker FXCM is also extremely transparent regarding these financing costs, as the financing costs are always three percent above the current LIBOR. On the other hand, the trader can of course also obtain financing (LIBOR -3 percent) if the position is short.
Other fee factors to be considered with the broker FXCM are only available for payment methods. For example, fees for deposits and withdrawals at FXCM by credit card are incurred from the third withdrawal by bank transfer. You can easily avoid these fees by either withdrawing funds by credit card or by limiting the maximum number of withdrawals from your trading account to two per month by bank transfer.
Conclusion on Costs and Fees at Broker FXCM
In summary, the costs incurred when trading via the broker FXCM are extremely transparent. The broker deliberately does not work with the usual mark ups (mark-ups on spreads), but instead with very low spreads and a kind of flat rate for commissions. For example, the USD/EUR pair can be traded from very low spreads of 0.2 pips. On average, however, the spread in EUR/USD is around 0.5 pips. The amount of the commission is fixed and depends on the respective trading volume. For example, with a transaction volume of 5,000 euros, traders often pay less than 50 cents in commission for opening and closing the position. The client therefore knows exactly what costs he has to expect for the individual currency pair per transaction volume. Otherwise, the broker will charge the usual financing costs for long positions, and from the third payment per bank transfer per month, costs will also be incurred.