Beginner: what's the difference between spread, commission and swap?

These three costs show up on almost every trade, and mixing them up is one of the most common beginner mistakes. Here is a plain-language overview.

Spread

The spread is the difference between the buy (ask) price and the sell (bid) price. If EUR/USD is quoted 1.10000 / 1.10010, the spread is 1 pip. You pay it the moment you open a trade, which is why a new position starts slightly negative. Spreads can be fixed or variable. Variable spreads usually widen around news releases, at the daily rollover and in quiet markets.

Commission

Some accounts, often called raw or ECN-style accounts, offer very tight spreads but charge a separate commission, usually quoted per standard lot (100,000 units). It may be shown per side (opening and closing are charged separately) or round turn (both together). Always check which one is meant.

Swap (overnight financing)

If you hold a position past the broker's daily cut-off, usually 5 pm New York time, you pay or receive a swap. It is based on the interest-rate difference between the two currencies plus the broker's markup. Swaps are often tripled on one day of the week, commonly Wednesday, to cover the weekend. For long-term trades, swaps can cost more than the spread.

Putting it together

The total cost of a trade is roughly:

spread + commission (if any) + swaps for every night held

A no-commission account with a 1.2 pip spread can cost about the same as a 0.2 pip account with a 7.00 round-turn commission. Always compare the total, not the headline spread.

Other costs to know about

Deposit and withdrawal fees, inactivity fees, and currency-conversion charges if your account currency differs from your bank currency.

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