What is trading?
FOUNDATIONS: COURSE 1 | LESSON 5
The real cost of a trade: spreads, swaps, commissions
Learning objectives
By the end you can compute the all-in cost of a trade — spread, commission and swap — in dollars and in pips.
By the end you can explain what swap is, why it can be positive or negative, and why Wednesday is special.
By the end you can judge how costs interact with your trading style and why they matter more the shorter your timeframe.
Nobody opens a trading account dreaming about fees. But here's an uncomfortable truth: for a beginner making many small trades, costs are often the difference between a slightly-winning process and a losing one. The market decides your gross result; costs are subtracted with certainty, every time, win or lose. Professionals know their all-in cost per trade to the cent. After this lesson, so will you.
Cost #1 — the spread (you've met)
The spread — the bid/ask gap — is paid once per round trip, at entry (D1.4). On a typical account, EUR/USD might average 0.9 pips, GBP/USD 1.3, USD/JPY 1.0, gold ~2.5 (in gold's own point terms), exotics like USD/TRY often 30+.
In money: 0.9 pips on 0.1 lots = $0.90 per trade. Trivial? Depends entirely on your denominator:
- On a 90-pip swing trade, 0.9 pips is 1% of the move. Background noise.
- On a 9-pip scalp, it's 10% of the move — you need to be right substantially more than half the time just to cover spread.
Two behaviours to know: spreads widen when liquidity thins — around major news releases (a 0.9-pip EUR/USD spread can flash to 5–15 pips during a big announcement), at the 22:00 GMT rollover period, and at Sunday opens. If you must trade around those times, expect worse entry costs and wider slippage. And spreads differ by account type, which we'll square up below.
Cost #2 — commission (sometimes)
Broker accounts generally come in two pricing models:
- Spread-only: no separate fee; the broker's compensation is baked into a wider spread (e.g. EUR/USD ~1.5–1.9 pips).
- Raw spread + commission: near-interbank spreads (EUR/USD ~0.0–0.3 pips) plus a fixed commission, commonly around $3.50 per lot per side ($7 per lot round trip).
Which is cheaper? Convert commission into pips and compare. $7 per lot round trip ÷ $10 per pip = 0.7 pips equivalent. So raw 0.2 + 0.7 = 0.9 pips all-in, versus, say, 1.7 pips on the spread-only account. For active traders the commission account usually wins; for occasional swing traders the difference per trade is small. The point isn't which model — it's that you should do this conversion for your account and know your number.
Cost #3 — swap (the one nobody reads about until it bites)
Hold a leveraged position past the daily rollover (typically 22:00 GMT / 5pm New York) and your account is credited or debited a swap (overnight financing). Why? A CFD position is financed exposure: conceptually, being long EUR/USD means holding euros (earning euro interest) funded by borrowed dollars (paying dollar interest). The swap is roughly that interest-rate differential, plus the broker's financing markup, prorated daily.
Consequences worth actually knowing:
- Sign depends on direction and rates. With US rates above euro rates, long EUR/USD typically pays a negative swap; short EUR/USD may earn a small positive one — markups often eat it, but positive swaps do exist (they're the seed of "carry" strategies you'll meet at Professional level).
- Realistic scale: long 1.0 lot EUR/USD might cost in the region of $5–10 per night; 0.1 lots, $0.50–1.00. Trivial for a two-day hold; on a 30-day hold at $0.70/night, that's $21 — which would fully consume a 21-pip profit on that 0.1-lot position.
- Triple swap Wednesday. Spot FX settles in two business days, so positions held over Wednesday night are charged three days of swap to cover the coming weekend (the day varies for some non-FX instruments). If you day-trade you'll never notice; if you swing trade, Wednesday night is a known 3× cost.
- Where to check: exact swap rates per instrument, long and short, are in your platform's instrument specification (MT4/MT5: right-click the symbol → Specification) and on the broker's website. Check them before planning multi-week holds, not after.
- Islamic (swap-free) accounts replace swaps with different fee structures for eligible clients — different, not free.
The all-in worked example
Let's cost a realistic trade completely. Setup: buy 0.5 lots EUR/USD at 1.0850, raw-spread account (0.2-pip spread + $3.50/lot/side), held 5 nights (including a Wednesday) with swap at −$7 per lot per night. Exit at 1.0920 (+70 pips).
| Item | Calculation | Cost |
|---|---|---|
| Spread | 0.2 pips × $5/pip (0.5 lots) | $1.00 |
| Commission | $3.50 × 0.5 lots × 2 sides | $3.50 |
| Swap | −$7 × 0.5 lots × 7 swap-days (5 nights incl. triple Wed) | $24.50 |
| Total | $29.00 |
Gross profit: 70 pips × $5 = $350. Net: $321. Costs consumed 8.3% of the gross — equivalent to 5.8 pips. Acceptable for a 70-pip winner. Now imagine the same cost structure on a trade that gained 12 pips ($60 gross): costs of ~$29 take nearly half. Same fees, radically different impact — cost per trade is fixed-ish; your edge per trade is what varies. This is the underlying reason beginners are consistently advised toward fewer, longer, larger-move trades: the arithmetic of costs is gentler there.
And the corollary for frequency: a trader taking 10 round trips a day on 0.1 lots at ~$1.60 all-in cost per trade pays $16/day — **$330 a month**, or a full 33% headwind on a $1,000 account, before any market wins or losses. The market didn't beat that trader. The invoice did.
Knowing your break-even
Put your numbers together into one figure: break-even pips per trade = spread + commission-in-pips (+ expected swap if you hold overnight). On our raw account: 0.2 + 0.7 = 0.9 pips intraday. Every trade starts 0.9 pips behind; every strategy you ever test must clear that bar on average to earn anything. Write your account's number down. It belongs in your trade journal (F2.5) next to every entry — because a process that wins 55% of the time with 1:1 outcomes is profitable at 0 cost, marginal at 0.9 pips, and a slow leak at 3 pips. Costs don't just reduce profits. They decide which strategies are viable at all.
Key takeaways
Three costs: spread (every trade, at entry), commission (account-type dependent), swap (per night held, tripled once weekly for FX).
Convert everything to pips-per-trade and know your all-in break-even number; every strategy must clear it on average.
Costs are near-fixed per trade while edge varies — so they punish short moves and high frequency hardest.
Swap follows interest-rate differentials: usually a cost, occasionally an income; check per-instrument rates in the platform spec before multi-week holds.
Spreads widen at news, rollover and Sunday opens — the worst moments to pay for immediacy.