The greatest enemy of a forex trader is not the market as most people do think, “the greatest enemy to the trader is the trader himself”. To some, forex trading is the hardest thing they can think of or ever do; it becomes harder when you trade with a smaller account size. The minimum account size I urge traders to start with is $500 and anything less than that should be used in a cent/mini account (cent account is a type of account were the dollars are converted to cent while mini account uses smaller lot size).
Forex traders who trade a small account size get frustrated sooner or later which result to them (forex traders) calling this lucrative business a scam only a few manage to keep their head up for survival and gradually build their account to a reasonable amount. Apart from the consecutive losses that kick traders away from this business we have the “transaction cost”.
Beginners do not take “transaction cost” into consideration, I am also sure a lot of traders do not take it serious. Just like any other business, FX has a cost that has to be paid to the broker and to the service providers and they include:
Most traders which include both stock traders, fx and futures traders neglect the “commissions paid to brokers” these commissions are to be small to be noticed but when piled together, you will realize that these commissions consume a huge percentage of your profit, and these profit goes to the broker.
A trader with a $100 account balance has a broker that charge $4 on a lot (1.00) each on both sides of a trade that is $4 is charged on a 1 lot of buy and 1 lot of a sell, using 0.01 lot the amount charged will be $0.04 – which is so small to notice.
Remember this amount is charged even if your trade ends up as a loss, but a trader with $1,000 has an advantage, an advantage that he can use which ever lot size he desires. The bigger your account size, the smaller the percentage eaten by commissions. Another way to avoid paying such commission is not to be hyperactive and design a trading system that doesn’t trade very often.
Slippage is the difference between the price at the time you place your order and the price at which that order got filled. Slippage to some is noticeable while to other, they simply don’t care. Slippage really affects people who “trade during news release”.
Slippage isn’t a big deal to “long term trader” because if they are to experience a slippage of 15 pips it is nothing compare to their target of 200 pips, though it doesn’t affect the “long term trader” that has more than $1000 in this account, it does affect the trader that has less than that.
Also Read: Which Market to Trade: [Binary] Option.
Most brokers give a positive slippage where the 15 pips will be in your favour and direction but only a few brokers do this. In other to survive long in this business, it is advice to look at the daily time frame to see a clear picture of what the market is showing in other to make the right call and also to avoid negative slippage.
Swaps (Roll Over):
Swaps are charged when a trader holds a trade overnight they are charged based on the exchange rate and are usually published weekly. “Most brokers have a high swap rate that is killing to long-term traders”, each day a trader pays this, which a certain amount of it goes to the broker as profit.
I personally have a brokerage company where I pay no swaps but this swap is compensated with the spread. There are brokers that give “Muslims a free swap account -because of their religion and to other traders but based on some certain conditions click here to go to our recommended brokers”.
Swap charges are one of the reasons why traders do not trade long-term, but getting an “honest broker” that gives a fair swap charge or that give a free swap account can increase your personally profit to good level.
Spread are the difference between the bid and the ask price. Spread are becoming relatively tighter most broker has spread of 0-1 pips on EURUSD unlike 10 years ago where spread where quite high.
Using a broker with a wide-spread means you will have a wide gap to cover when you open a trade and most of your profit would have been eaten up by the spread. Getting a broker with tight spread is a recommendation for all forex traders.
Commissions, slippage, swap and spreads are just some of the expenses we face when trading. To start forex trading, we need a steady and stable internet connection along with a dedicated computer. Sometimes we do not realize profit during the first month of trading just like any other business out there we should be patient and watch the profit unfold itself, paying for internet during the first month or two or getting a computer might come from our pocket but the lovely thing about forex is “its profitability with time”.