Fees used by Brokers - Guide

There are 2 types of fees, which you can encounter, when you are trading - commissions and swaps.

At first I will boil down both of these terms:

Swaps

Swap is defined as an overnight or rollover interest for holding positions(if you didn't get out of the trade) during night in Forex market. Each of these swaps is measured by points and each currency has its own special swap charge. The particular size of swap charge depends on the size of your position.

You could calculate your swap cost for any position using the following formula: 

Swap charge = (Volume of the order * Swap rate * Number of days). Let's take an example with 1 standard lot of GBPUSD with a swap rate for a short position of -2.5. Then we calculate the swap charge this way: 1 lot * (-2.5) * 1 day = -2.5 GBP. This will be the amount charged from your account for holding this position over 1 night.

but I strongly recommend not doing so, but using this calculator instead, for both commissions and swaps, which you want to calculate.

Commissions

Simply the commission is a fee charged from your broker for every executed trade and is included in your equity after you have got into the trade. It depends on broker how much money will commission cost, but don't worry, the brokers are fighting for customers by promoting  their low commissions. On the other hand the brokers derive most of their profit by charging these commissions on transactions of their clients. So every time, when you open the position, the broker will get money.

    in the bottom right can be seen a swap and commission tab

A lots of brokers are trying to entice traders by promising small exchange fees or tiny commissions. No transactions cost is clearly an advantage, because every dollar as we know, counts in trading. But on the other hand the beginners tend to fall into the trap - having small commission doesn't have to be the best deal ever. At first you should evaluate your forex fee/commission and consider all its advantages and disadvantages. The amount of  spreads should be a key consideration when choosing a Forex broker because paying a high spreads can be a significant loss of money.

In first place  you should get to know the commissional structures:

There are 2 most used commissional structures in forex: a fixed spread and variable spread. Question is clear: Which of these you should choose?

As we know the spread is the difference between bid and ask  price. If the ask price is at 1.4954 and bid price at 1.4950, the difference between those is 14954 - 14950 = 4 pips. So the spread of this currency pair is 4 pips, also called fix spread. The fix spread depends also on currency pair which you are trading and current. The broker has to guarantee that the spread will remain the same even throughout the big announcements in economic calendar and big market hours, which are times of high volatility.

If your broker offers tighter fix spread than the other, he has a good relationships with big players - the banks and will be able to pass better bank quotes on his customers. Of course the broker will never offer as good price as bank price quotes have, because giving commission by widening spreads can be very profitable. Another significant factor which depends on having tighter spreads is, how much volume the broker with the bank does or how much volume he's allowed to use. The higher the volume is, the tighter spread is offered to the traders(customers).

A variable spread

A variable spread is not fixed or designated by the bank, but the spread fluctuates in a range between the bid price and ask price. A variable spread is very low during market inactivity, but on the other hand can be very wide in correlation with busy hours on market and extraordinary liquidity. The higher the liquidity is, the higher the range of spread can be. But the broker should promise or ensure his customers that the spread will not widen to a certain degree(like 30 pips), even throughout the busiest hours on the market. A variable spread usually falls within a range of fix spread most of the time and is commonly ranged between 2 or 3 pips on major currency pairs. These numbers tighten or wides a few pips depending on conditions liquidity of the market.  So if we would take a EURUSD pair as an example, it normally fluctuates roughly about 1 - 4 pips, but if market is busy and liquidity is higher than the average, it means that the spread can indeed widen up to 8 - 10 pips. The reason for that is the amount of orders, which shrinks during economic announcements and people are frightened to execute orders . So it is really difficult and requires a lot of skill to trade with variable spreads during big moves on the market.

    When the big markets across the world open, it's highly probable that the volatility of the market         will be higher

At the end I should mention that spreads don't matter that much when you are trading higher time frames, because the higher time frame is, the higher chance is, that the trader will place not that many orders. So the spreads will be tiny compared to the potential profit and trader won't care that much about commissions.  The spread difference should be a problem for short-time traders, whose concern isn't placing an 100 pips order, but are aiming for 30-40 pips to trade. In this condition the width of the spread can play a big role.

Fixed vs variable spread

In my opinion there is no clear winner and we should considerate both, when choosing the broker for trading. Variable spreads are highly recommended for traders who like to trade during quiet market hours (for example in the night) and intend to execute or exit trades throughout these hours. So you can obtain a better spread than someone who uses fixed spreads. If someone would enter a trade on off-peak, when the spread is very tight, the variable spread is roughly about 1-1.5 pips as opposed to fixed 3-4 pips spread, what can give the trader with variable spread an initial advantage. But on the other hand these off-peaks or consolidation times mean that the market doesn't move a lot and it is less clear where the price action will head. During swift activity on the market, when the big announcement of the central bank has been released or the opening of the stock exchanges occurred, it can be rather deadly and deterrent for the trader with variable spread to execute an order. It really depends on kind of trader you are. As the fixed spread doesn't change throughout these hours, it is preferred by traders, who like to trade during high volatility. Do you prefer to execute trades during quiet or busy hours? 

Another problem of the variable spreads is the miscalculation between bid and ask price, what can lead to placing your stop loss or take profit not the right way. The traders can't misinterpret the market with fixed spreads and are already used to parameters of particular currency pairs. So it's better for strategic planning and money/risk management, because of smaller element of surprise and miscalculation.

So to conclude, I think that choice of the type of  spread depends on your trading time, trading hours, appetite to risk, fast-moving market handling and type of money management. If you like to be less active market hours with lower costs and don't like to trade during trading announcements definitely go for variable spread. If on the other hand you like predicable consistent spread, which you are able to trade anytime, aim for fixed spread.