There are three core cost types associated with forex trading: forex spreads, forex swaps, and forex commissions. Traders must learn the role of each component and how they interact in order to understand all the options available, practise strategic trading, minimise costs and optimise outcomes.
What is Spread in Forex and Why Does it Matter?
A forex spread represents the entry and exit costs of trading a currency pair calculated by subtracting the bid (sell) price from the ask (purchase) price of your chosen pair. Simply speaking, the wider the spread, the higher the trading costs.
The bid-ask spread is measured in pips which represent the smallest units of price movement for a currency pair. Typically calculated to the fourth decimal place where one pip equals 0.0001, this value represents either the broker’s profit or the trader’s transaction costs.
There are two different types of spreads – fixed and variable/floating. Fixed spreads stay constant regardless of external market conditions, while variable spreads change in line with market activity.
While the predictable nature of fixed spreads support a more consistent trading strategy, they can be slightly higher cost than variable spreads during regular market conditions. However, variable spreads are more vulnerable to higher, unexpected trading costs during market volatility.
Low trading spreads are considered to be the most desirable because this equates to lower entry/exit costs and a knock-on positive effect on trading outcomes even with smaller price movements. For beginners and short-term traders they can be especially effective as such approaches typically rely on tight spreads with major currency pairs in a highly liquid market.
As one of the most highly respected low spread forex brokers, ActivTrades displays buy and sell price and spreads for all pairs when forex trading for full transparency and a user-friendly experience.
What is Swap in Forex and How it Affects Overnight Trades
A swap in forex refers to the interest rate adjustment applied to forex positions when held overnight. Calculated as the difference between the interest rate of the two currencies in a pair, brokers will either charge a fee or make a payout (pay swaps) to the trading account depending on the interest rate differentials.
Fx swaps are structured on benchmark interest rates set by the central bank – a framework within which traders borrow one currency to buy another with their position subject to the difference between the two interest rates.
Swaps are calculated on a daily basis considering the interest rate differentials, whether the trader has bought or sold the currency pair, and the size and length of time for which the position is held.
Swaps are applied to the trading account at the end of each trading day (rollover). “Triple Swap Wednesdays” refers to the fact that the Wednesday rollover covers three days of swaps (including Saturday and Sunday when the forex market is closed) in order to effectively account for interest adjustments across the week.
Designed to support traders from beginner level, the ActivTrades broker platform offers complete transparency when it comes to forex swap calculators. This includes comprehensive online swap tables where traders can view swap rates for each currency pair in line with live market activity and central bank rates.
Traders can clearly see whether the swap rates are positive or negative and the potential swap charges associated with their chosen currency pairs.
Forex Commission Explained: What Are You Really Paying For?
Forex trading commissions refer to broker fees charged for executing a trade on the trader’s behalf. These are clearly defined costs charged “per lot” - as a fixed fee on a standard lot (otherwise known as a round-turn). Alternatively, they may be charged per side with commission divided between the opening and closing of the trade which ultimately results in the same total cost as the round-turn method.
When it comes to forex commissions vs. spread-based pricing, the commission is charged as a standalone cost per trade whereas spread costs are built into the spread itself within the bid-ask structure.
Commission-based accounts commonly feature low or raw spreads starting from 0.0 pips, a more predictable cost structure, tighter spreads and greater cost transparency. In contrast, the cost structure of spread-based accounts is more accessible with no separate fees.
The ActivTrades platform offers several different account types. Certain accounts see commissions charged per lot with minimal spreads, designed for those seeking precision in their trading journey. As a respected zero commissions forex broker, ActivTrades also offer commission-free products with all trading costs rolled up into the spread for a more flexible approach best suited to beginner forex traders.
Forex Spread vs Forex Swap vs Forex Commission: What’s the Real Cost of Trading?
As three core forex trading cost components, the spread, swap and commission together form the total trading cost and therefore directly impact trading outcomes and profitability. The costs of each should be integrated into a trading strategy for effective cost and risk management.
Depending on your desired trading outcomes, style and commitment, you may choose to prioritise low spreads, low swaps or zero commission.
For example – scalpers and day traders will likely choose low spreads and minimal commissions to maximise efficiency as follows:
Trader A – Scalper (Raw Spread + Commission Account)
- Spread: 0.2 pips
- Commission: £5 per lot (round-turn)
- Swap: none (intraday only)
- Total cost: ≈ £7 per trade
In contrast, swing traders will hold positions for longer, including many overnight positions, making balanced swaps and even spreads more of a priority. This prevents the cost of daily commissions building up and prioritises a straightforward strategy over tight spreads.
Trader B – Swing Trader (Commission-Free, Spread-Only Account)
- Spread: 1.3 pips
- Commission: £0
- Swap: –0.7 pips per night × 5 nights = –3.5 pips
- Total cost: ≈ £14 per trade
How ActivTrades Helps You Minimise Trading Costs
ActivTrades offers some of the most competitive forex spreads of all the respected brokers with a user-friendly platform including transparent swap tables for straightforward trading.
Spreads and swaps for major pairs, as well as minors and exotics, can be easily viewed on both the website and within the MetaTrader and ActivTrader platforms. This has been carefully designed to encourage traders to use swap and spread calculators to forecast costs and integrate these into an informed trading strategy.
Forex Spread, Forex Swap & Forex Commission FAQs
What Is a Swap in Forex?
A swap is the interest payment made or received by the broker at the end of the trading day to cover the cost of holding the currency position overnight, calculated as the difference in interest rates between the two currencies in the traded pair.
What Is a Spread in Forex?
Measured in pips, the spread refers to the cost you pay to enter and exit a trade.
How Does a Forex Commission Calculator Work?
The forex commission calculator allows traders to determine the cost of opening and closing a trade before placing it to support effective cost management and strategy. Traders will need to input key details including the chosen currency pair, trade size and commission rate. The calculator will then show how much of the trade’s potential profit will be taken as commission fees.
The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.
All information has been prepared by ActivTrades (“AT”). The information does not contain a record of AT’s prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at their own risk. Forecasts are not guarantees. Rates may change. Political risk is unpredictable. Central bank actions may vary. Platforms’ tools do not guarantee success.