There are thousands of retail forex brokers that traders can select to partner with, with many different cost structures, but what type is the best?
The Best Forex Broker
There are thousands of retail forex brokers that traders can select to partner with, with many different cost structures, but what type is the best? Some forex brokers, such as FxPro have no commissions, but typically have very wide spreads. Other brokers such as IC Markets have extremely low spreads from 0.0 pips, but charge a commission on entering and exiting every trade. There are also brokers that lie somewhere in between, with slightly wider spreads but lower commissions. We have enlisted the help of TradeProofer to answer the question - what is the best type of forex broker?
How We Will Calculate the Cost
To answer this question, we are going to assume that the account is USD base currency, and that one standard lot (100,000 units of currency) is traded. We are also using the general rule of thumb that 1 pip = $10 per lot.
For this experiment we are comparing FxPro as the no-commission broker, IC Markets as the low spread broker and ForexChief as the in between. We recorded our data between 26/10/2020 and 30/10/2020. Thanks to TradeProofer.com for helping us compile this data!
Raw Spreads
Above is the average hourly spread for the week of 26/10/2020 to 30/10/2020. Hours are in GMT (eg 21=2100). Notice that IC Markets clearly has the lowest average spreads.
True Trade Cost (1.00 lot, EURUSD)
You can see that “no-commission” brokers can in fact be far more expensive to trade with than commission+low spread brokers.
No Commission, Only Spread - FxPro
“Trade Commission Free” is a marketing line that gets thrown around a lot with financial markets brokers, but is it actually advantageous to trade “commission-free”? We crunched the numbers - and they are surprising.
During the period we recorded, FxPro averaged a EURUSD spread of 1.53 pips, or a spread equal to about $15.3 per lot. This is quite a bit considering that it is paid twice; once when opening a trade and once when closing.
Raw Spread Plus Commission - IC Markets
“Spreads from 0.0 pips” is another common tag line with raw-spread brokers. During our recording we have been able to verify that IC Markets does have spreads from 0.0 on major pairs. During our recording IC Markets averaged a EURUSD spread of 0.11, equal to roughly $1.1 per lot. In addition to spread IC Markets has a $3.5 commission, meaning that $4.6 is the average cost per transaction. This would be paid on opening and closing the trade.
Low Commissions, Low Spread - ForexChief
In the middle ground lies ForexChief, with their low commissions of $15 for every million units traded (roughly 5 lots), equating to $1.5 per lot/per side. They offer slightly wider spreads than IC Markets, but tighter spreads than ‘no commission’ brokers. During the period we recorded ForexChief averaged a EURUSD spread of 0.31, equal to roughly $3.1. In addition to spread ForexChief has a roughly $1.5 commission, meaning that $4.6 is the average cost per transaction. This would be paid on opening and closing the trade.
Summary
In summary it is clear that “Trading Commission Free” is not advantageous, in fact it actually is more costly to traders than paying commission to trade a low spread. Below you can find the summary.