Before trading forex, you will have to open a trading account with a forex dealer. There are no rules about how a dealer charges a customer for the services the dealer provides or that limit how much the dealer can charge. Before opening an account, you should check with several dealers and compare their charges as well as their services.
Some firms charge a per trade commission, while other firms make their money on the spread between the bid and ask prices they give their customers. In the earlier example, the amount of the Euro spread is .0008 (the 1.2178 ask price minus the 1.2170 bid price). This means that if you bought (or sold) the Euro and immediately turned around and sold (or bought) it before the prices changed, you would have a $.0008 loss on each Euro, or an $80 loss on a 100,000 Euro transaction. The wider the spread, the more the price has to move before you break even.
While some forex firms advertise “commission free” trading, they are still making money from your trades through the bid/ask spread. Before opening a trading account, be sure you know how all the parties involved are being compensated. Retail forex transactions are normally closed out by entering into an equal but opposite transaction with the dealer. For example, if you bought Euros with US dollars, you would close out the trade by selling Euros for US dollars. This also is called an offsetting or liquidating transaction.
Many retail forex transactions have a settlement date when the currencies are due to be delivered. If you want to keep your position open beyond the settlement date, you must roll the position over to the next settlement date. Some dealers roll open positions over automatically, while other dealers may require you to request the rollover. Some dealers charge a rollover fee based upon the interest rate differential between the two currencies in the pair. You should check your agreement with the dealer to see what, if anything, you must do to roll a position over and what fees you will pay for the rollover.
