How Broker Fee Structures Work

What Spreads Are and Why They Exist

A spread is the gap between the price a broker will pay to buy an asset from you and the price they will charge to sell it to you. When you open a trade, you're immediately at a loss equal to that spread—even before market movement. The spread widens or narrows depending on how many other traders want that asset at that moment. During busy trading hours, spreads tend to be tighter. During quiet periods, they widen. This is mechanical: fewer traders mean fewer matching buy and sell orders, so the broker's cost to balance trades increases.

How Commissions Work

Some brokers charge a flat fee per trade instead of (or alongside) spreads. You might pay a fixed amount each time you open or close a position. This model is transparent: you know the exact cost upfront. The broker takes a percentage of your trade size, or charges per lot or per contract. Unlike spreads, commissions don't change based on market conditions—they're contractual.

Swaps and Overnight Holding Costs

When you hold a position overnight, your broker charges interest on the borrowed funds you're using. This is called a swap or overnight fee. If you borrow money to trade an asset worth more than your deposit, you pay interest. The rate depends on the underlying asset's interest rates and the broker's financing costs. This cost accrues daily. Some brokers charge daily, others weekly. The longer you hold a position, the more these fees accumulate.

Inactivity and Account Maintenance Fees

Some brokers charge you for not trading. If your account sits idle for a set period, you may owe a monthly or quarterly fee. This incentivises the broker's business model: they make money when you trade, so dormant accounts cost them resources. Other brokers charge for account features—withdrawal requests, account statements, or account closure. Read the terms carefully; these fees can quietly drain a small account.

Where Costs Hide

Markup fees on deposit and withdrawal exist with some brokers. They may quote a currency conversion rate worse than the market rate. Slippage—the difference between the price you expected and the price you got—isn't always a "fee," but it acts like one. During volatile markets or when liquidity is low, your order executes at a worse price than you anticipated. Some brokers also charge for platform features, data feeds, or access to certain markets.

How to Compare Costs Across Fee Models

Different brokers use different combinations. One might charge zero commission but wide spreads. Another charges tight spreads but flat commissions per trade. A third charges low fees but high swap rates. You cannot compare two brokers fairly without running a hypothetical trade through both: a round-trip trade (buy and sell) at their typical spreads or commissions, held for a typical duration, accounting for swap costs. The total cost depends entirely on your trading style—day traders feel spreads most; long-term position holders feel swaps most.

How to Verify Fee Claims

Every broker should publish their fee schedule in writing. Request it before opening an account. Check whether the advertised spread or commission is the typical rate or the best-case rate. Brokers often show minimum spreads during peak hours. Ask what the average or typical spread is. For swaps, ask for the exact daily rate and how it's calculated. Test a small trade to see the actual cost versus the quoted cost. The gap between quoted and actual is where costs sometimes hide.