While there are many costs to trading forex, most costs are categorized in three ways:
Explicit Costs, Implicit Costs and Optional Costs
Explicit costs: are the fees your broker charges. Examples of explicit costs include commission, spread, margin costs, account and management fees, software fees, and data fees.
Implicit costs: are costs that are not charged by the broker, but by the market. For example, a losing trade could be considered an implicit cost. Other implicit costs include slippage, gaps, opportunity costs, etc.
Optional costs: are just that – they’re optional – they are services that may help you make better trading decisions. Optional trading costs include education, better technology, newsletters, trading systems, or advisory services.
As with anything, trading costs can get expensive. However, it’s not necessary to pay high costs while trading.
For example, to beat the high explicit costs of trading, take time selecting a good broker: be selective and do your homework. Brokers can be tricky at masking fees, so there is no better way to understand the true cost than by opening a small account and testing them out.
Implicit costs are kept in check by improving your knowledge and trading skills. Take time to develop your skills: observe, practice, and learn. Companies like the Apiary Fund provide excellent education and skill development training to mitigate your risk and costs while you’re developing your skills.
It’s important to know that there will always be costs to trading forex. These costs should not discourage you from trading, but encourage you to be a better trader. The benefits can far out-weigh the expense if you’re willing to be careful, and understand the costs before you dive in!