If you’re an active trader, one way to increase your profits (or limit losses) is to cut your trading costs.
In this short article, I will show you three ways to cut your trading costs. In many instances, you could cut them by 50% or more!
Choose an account in your local currency
When you open an account with a forex broker, you often get the option to choose what currency the account will be in. One way to immediately cut your costs is to choose an account in your local currency.
If, for instance, you are from Denmark, where the local currency is Danish krone (DKK), your bank will charge you a conversion fee each time you deposit and withdraw.
How big this conversion fee is, varies a lot, but it’s not unusual for a bank to charge you 2 percent or more.
Think about it, before you even start trading, you are down by 2 percent! Each time you withdraw, your bank takes away 2 percent again!
Choosing an account in your local currency eliminates this cost right away.
This is obvious, but many traders tend to trade way more than necessary.
Each time you put on a trade, the broker will charge you with a spread or a commission. If you are over-trading, you are basically feeding your broker commission.
Choose a long-term strategy, and you will save a lot on commission fees.
Choose an ECN broker
An ECN broker has several liquidity providers and can present you with raw interbank spreads. When the market is very liquid, you can trade from 0.0 pips on the most liquid pairs such as EURUSD.
The broker charge you a commission instead of a markup (spread). The commission varies from broker to broker, but $6 per lot is not unusual.
You trade 10 lots in the EURUSD each week (10 lots = 1,000,000 units) with an average spread of 1.2 pips.
In a week, you have been charged $120 in spread, in a month $480, in a year $5670!
Let’s say you switch to an ECN broker that charge you a commission of $6 per lot. Your yearly costs would be half!
Instead of paying $5670 in spread per year, you would pay $2835 – a saving of 50% or $2835!
Hope you enjoyed this article. If you’re an active trader, I highly recommend the ECN broker Pepperstone.