Spread and commission: the real cost of trading

Every instrument is always quoted with two prices: the bid, at which the market buys from you, and the ask, at which it sells to you. The difference between them is the spread, and it is the first cost of any trade: the moment you open, the position starts negative by that amount. It is not a hidden fee, it is the payment to whoever makes the price and takes on the risk of holding inventory.

That spread is not a constant. It tightens when there are many participants and depth in the book, and widens when liquidity disappears: in the minute of a macroeconomic release, at the Sunday open, in the last hour of the American session, on public holidays and at month-end. Comparing two brokers’ advertised minimum spreads without asking what hour they are measured in means comparing two different things.

Hence the difference between variable and fixed spreads. The variable one reflects the real spread of the market: highly competitive in high-volume hours, wider when the market thins. The fixed one offers predictability, but it includes a buffer that covers precisely those stress episodes; in normal conditions, that buffer is paid for. Neither model is better in the abstract: it depends on when and how you trade.

On that axis sit the industry’s two usual charging models. Some accounts give access to spreads from 0.0 pips and charge an explicit commission per lot traded; others charge no commission and build the cost into a slightly wider spread. It is exactly the same bill presented two ways: in one case the cost shows in the trading window, in the other it appears on the account statement.

Comparing properly therefore requires a single figure: the total round-turn cost per lot. You calculate it by adding the average spread observed in your real trading hours, converted into money through the instrument’s pip value, plus the opening and closing commission where it applies. With that number in hand, two accounts that looked very different usually converge, and sometimes the one advertised as «commission-free» turns out to be the more expensive.

How much that cost matters depends radically on style. A high-frequency strategy that opens dozens of trades a day targeting a few pips lives or dies by cost: a few tenths of a pip decide whether the system is profitable. In swing trading, with targets of hundreds of pips and few trades per month, the entry cost dilutes, but another one appears that the scalper hardly ever pays: overnight financing, the swap applied for every day the position stays open.

The practical conclusion is simple: before choosing an account, measure rather than read headlines. Watch the spread during the hours you will actually trade, review each instrument’s specifications and each account type’s conditions on the platform, and run the round-turn cost calculation with your own numbers. In MetaTrader 5 all of that information sits in the symbol properties and the account history. Lowering costs improves a system’s odds, but it does not remove the risk of loss.