Forex Currency Trading

Currency Exchange – Forex Mamma

Forex Spreads and Fees

You have probably noticed that most online Forex brokers do not charge commission. Therefore, you may wonder how these brokers make money. The answer is simple-brokers make money with pip spreads.

Pips are the smallest fractions units of currency. Currency is expressed in to four decimal points and the smallest number is one pip. For instance, if the exchange rate for EUR/USD is $1.2334 to one Euro then the last digit is 4 pips. However, if the rate is currently $1.2334 the broker probably won’t buy and sell it at exactly that amount. Instead they will sell it at $1.2335 and buy it at $1.2333, making one pip off each unit of currency that is bought or sold. This is known as a spread. The aforementioned spread of $1.2333/1.2335 is a 2-pip spread. This is relatively low margin, but you will find brokers that take much larger spreads. It is therefore important to look into the spreads before you start investing. Because the spread exists in every unit of currency, the more you invest in the larger the fee will be.

When you invest in Forex online you may also expect to pay a fee for withdrawing money from your account. You won’t be charged a fee for all types of withdrawals. However, transactions involving international wires and bank transfers or withdrawals in international currencies could cost money. Make sure to look into the details of withdrawal transactions before signing up to avoid unexpected charges and fees.

If you are investing in Forex offline there is more of a chance that a commission will be charged. Offline Forex investing works more like mutual funds-you give a specific amount of money to the broker who invests it for you. For this service a monthly fee or commission is usually charged.