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Forex trading spreads, pips and fees explained

Read our simple guide to forex trading costs and technical jargon.

The world of forex trading can seem confusing and sometimes downright intimidating to newcomers.

If you're new to trading, you'll have to learn both forex jargon and technical trading.

To help get you started, let's take a closer look at what these technical terms mean and how they affect the cost of trading.

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.

How much does forex trading cost?

Unlike share trading, where the fee an online broker charges for each trade is clearly set out in black and white, the main cost you need to be aware of when trading forex is something known as the spread.

Rather than paying a flat commission or fee on your trade, the spread is the primary cost that applies to most forex pairs.

And here's where things start to get a little more complicated.

What's the spread?

No matter what currency pair you're trading, your broker will list two prices – the bid price and the ask price. The bid price shows the value at which you can sell the base currency of the pair, while the ask price is the price at which you can buy it from the broker. (Remember, the base currency is the one listed first.)

The difference between these two prices is known as the spread, and the ask (buy) price is always higher than the bid (sell price).

Taking the AUD/USD currency pair as an example, you might see your broker listing a sell price of 0.76594 and a buy price of 0.76604. Subtract the sell price from the buy price and you get a spread of 0.0001.

But the deeper you dive, the murkier things become for novice traders. This is because brokers commonly quote the size of the spread in something known as "pips".

Finder survey: What features matter most to Australians when choosing a forex trading platform?

Response
Low commissions68.18%
Tight spreads30.3%
Easy to use platform27.27%
Good range of forex pairs27.27%
Quality trading tools24.24%
Security and regulation22.73%
Speed of execution18.18%
High liquidity15.15%
Available platform (e.g. MT4)9.09%
Technical analysis tools7.58%
Availability of less common pairs (e.g. exotics)4.55%
Personal advice services4.55%
None of the above3.03%
Source: Finder survey by Pure Profile of 1145 Australians, December 2023

What are pips?

As you've probably guessed, the term pips in this context doesn't refer to the seeds in an apple or watermelon. Instead, pip actually stands for "percentage in point" or "price interest point".

With this in mind, a pip is a standard unit of measurement that defines the smallest possible price change between a pair of currencies.

For example, a broker might announce that they offer minimum spreads on the AUD/USD currency pair from 0.6 pips. Some brokers will also use points instead of pips when outlining the spread.

Now, let's take another look at our AUD/USD example:

  • A sell price of 0.76594
  • A buy price of 0.76604
  • Resulting in a spread of 0.0001

Most brokers quote currency pairs out to 4 or 5 decimal places. And for most major currency pairs, a pip is equal to a price movement of 0.0001 – in other words, check the 4th decimal place of the currency pair for price changes. So in our example above, the spread is 1 pip.

However, it's worth noting that the bid and ask prices for Japanese yen currency pairs are only quoted to 2 decimal places. As a result, a pip is equal to 0.01 for JPY pairs.



What does the spread mean for me?

Have you ever seen "no-commission" forex trading advertised and wondered how the broker makes any money? While a broker may not charge any commission on trades, that doesn't mean they offer their services for free.

Instead, rather than charging you a separate flat fee, the spread essentially allows the broker to incorporate their commission as part of your transaction. That's how brokers make a profit – they sell currency at a higher price than the price they buy at.

Of course, there are also other factors that can affect the size of the spread, including the volatility and liquidity of the currency pair you're trading. That's why major currency pairs have tighter spreads than emerging market pairs.

Calculating the cost of a pip

Now it's time to think about how the price movement in a currency pair affects your potential profit or loss. To do that, you need to calculate the value of a pip, which depends on the pair you're trading, the exchange rate and the size of your trade.

If you're trading a major currency pair where 1 pip = 0.0001, the formula is simple. Pip value = (trade amount x 0.0001) / the current spot price of the forex pair.

Let's say you place a $10,000 long trade on AUD/USD at 0.7651. The value of AUD/USD then increases to 0.7681 – an increase of 0.00300, or 30 pips.

The value of a pip is (100,000 x 0.0001) / 0.7681. So 1 pip is $13.02, and the profit on the trade would be 30 x $13.02, or $390.60.

What is a lot in forex?

When you calculate forex, you'll be working with lots.

Forex is commonly traded in specific amounts. These mounts are known as lots or the number of currency units you will buy or sell.

Basically, a lot is a unit of measuring a transaction and will be how orders will be quoted by your broker.

A standard lot is the equivalent of 100,000 units of the base currency. But there are also mini, micro and nano lots that are 10,000, 1,000 and 100 units respectively.

But remember, lots trade based on standard sizes.

  • 100,000 units = 1.00 lot
  • 10,000 units = 0.10 lot
  • 1,000 units = 0.01 lot

Let's put this into perspective.

Say you have 100,000 units of AUD/USD.

And let's say the Australian dollar against the US is currently trading for $1.20.

If you were to receive 100,000 units of Australian dollars, in return you would have to pay $120,000 US dollars.

What other costs do I need to be aware of?

While many brokers make money from the spread rather than a commission, some also charge a separate flat commission on all trades.

This means they may offer tighter spreads than you can find elsewhere, but you'll need to consider the total cost of trading before deciding if this approach will be more cost-effective for you.

If you're a casual trader, you might be best suited to a zero-commission account, depending on the broker. In this case, you'll want to look for the lowest spreads on no-brokerage-fee accounts.

One other common fee to keep an eye out for is an inactivity fee. This fee is often charged on a monthly basis once you haven't made any trades from your account for a set time, such as 12 months.

Other trading charges may also apply. For example, you may be charged interest if you want to keep a position open overnight, the broker may charge a fee when you want to withdraw funds from your account or a currency conversion fee could apply if you trade in a currency other than your account's base currency. With this in mind, be sure to read the terms and conditions of your trading account closely.

If you're new to forex, there's a steep learning curve in front of you. But once you understand the jargon, and if you're willing to research the ins and outs of how the market works, you'll be in a much-better position to start trading.

Compare CFD and forex accounts

If you're looking to start trading. Compare our list of forex providers.

Disclaimer: General information only. All forms of investments (and in particular, trading CFDs, commodities and forex) carry significant risk, including the risk of losing more than the invested amounts, market volatility and liquidity risks. Past performance is no guarantee of future results. Such activities are not suitable for most investors.
Name Product Minimum Opening Deposit Minimum Spreads for Major Currencies Commission Minimum Trade Size Platforms
Pepperstone Forex Trading (Razor Account)
$0
0.0 pips
US$0.04 per 1k traded
0.01 lots
MetaTrader 4
MetaTrader 5
cTrader
TradingView
Pepperstone Trading Platform
Disclaimer: CFD Service. Your capital is at risk.
Choose from a range of fee-free funding methods, plus a suite of 10 different apps available as part of Pepperstone's Smarter Trading Tools.
Vantage Forex Trading
$50
0.0 pips - 1.0 pips
$0
0.01 lots
MetaTrader 4
MetaTrader 5
TradingView
Disclaimer: CFD Service. Your capital is at risk.
Spreads start from 0.0 on major currency pairs like AUD/USD, EUR/USD, GBP/USD and more. Plus you can places trades and find global trends through the TradingView charts platform. Trade with our RAW account with just $1 per lot each side
IG Forex Trading
$0
0.6 - 1.5 pips
$0
1 lots
MetaTrader 4
ProReal Time
IG Trading Platform and Apps
L2
Disclaimer: CFD Service. Your capital is at risk.
Choice of trading platforms. Choose optional extras like advanced charting, reporting and order types. Over 90 currency pairs to choose from.
IC Markets Forex Trading (Raw Spread account)
US$200
From 0.0-0.1 pips
AU$3.50 per 100k traded
0.01 lots
MetaTrader 4
MetaTrader 5
cTrader
Disclaimer: CFD Service. Your capital is at risk.
Trade forex with tight spreads as low as 0.0 pips and fast execution of under 40 milliseconds on average.
Saxo Forex Trading (Classic Account)
$0
0.5 pips
$0
$1000
SaxoTraderGO
SaxoTraderPRO
Disclaimer: CFD Service. Your capital is at risk.
Trade majors, minors, exortics, crypto and spot metals on Saxo's award-winning trading platfrom.
Blueberry Markets Forex Trading
US$100
From 0.0 pips
$0
0.01 lots
MetaTrader4, MetaTrader5
Disclaimer: CFD Service. Your capital is at risk.
Bottom of the market fees on forex, CFDs and commodities with 24/7 quality customer service.
ACY Securities Forex Trading
$50
0.0 pip
$0
0.01 Lot
MetaTrader 4
MetaTrader 5
Disclaimer: CFD Service. Your capital is at risk.
Trade over 2,200 instruments across CFDs on forex, shares, indices, commodities, precious metal, ETFs and crypto.
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Trading CFDs and forex on leverage is high-risk and you could lose more than your initial investment. It may not be suitable for every investor. Refer to the provider’s PDS and consider the risks before trading.

Disclaimer: General information only. All forms of investments (and in particular, trading CFDs, commodities and forex) carry significant risk, including the risk of losing more than the invested amounts, market volatility and liquidity risks. Past performance is no guarantee of future results. Such activities are not suitable for most investors.
Name Product Minimum Opening Deposit Minimum Opening Deposit Commission - ASX 200 Shares Available CFD markets Platforms
Pepperstone CFD
Finder Award
Pepperstone CFD
$0
$0
$5 or 0.07%
Australian Stocks, Commodities, Cryptocurrencies, ETFs, Forex, Global Stocks, Indices (CFDs only)
MetaTrader 4
MetaTrader 5
cTrader
TradingView
Pepperstone Trading Platform
Disclaimer: CFD Service. Your capital is at risk.
Get access to more than 60+ forex and CFD markets when you sign up with this award-winning Australian broker. Plus, access the new advanced TradingView charts platform.
Vantage CFD
$50
$50
No commission
Commodities, Cryptocurrencies, ETFs, Forex, Global Stocks, Indices (CFDs only)
MetaTrader 4
MetaTrader 5
TradingView
Disclaimer: CFD Service. Your capital is at risk.
Vantage has some of the lowest CFD trading fees in Australia including $0 commissions on all Gold trades. Plus you can find global trends and place trades through the new TradingView charts platform.
Plus500 CFD
$100
$100
No commission
Commodities, Cryptocurrencies, ETFs, Forex, Global Stocks, Indices, Options (CFDs only)
Plus500 Trading Platform
Disclaimer: CFD service. Your capital is at risk.
Trade CFDs on Australian and International shares, indices, cryptocurrencies, commodities and more.
IC Markets CFD (True ECN Account)
US$200
US$200
0.1% per side
Australian Stocks, Global Stocks, Indices, Commodities, Forex, Cryptocurrencies (CFDs only)
MetaTrader 4
MetaTrader 5
cTrader
Disclaimer: CFD Service. Your capital is at risk.
Trade 230+ different products with fast execution under 40 milliseconds on average.
Saxo Invested CFD
0
0
0.08% with $3 minimum
Bonds, Commodities, Cryptocurrencies, ETFs, Forex, Global Stocks, Indices, Options, (CFDs only)
SaxoTraderGO
SaxoTraderPRO
Disclaimer: CFD Service. Your capital is at risk.
Award-winning trading platfrom with extensive charting tools and reliable execution.
Blueberry Markets CFD Trading
US$100
US$100
$20 per month subscription plus 2% of trade size
Australian Stocks, Commodities, Cryptocurrencies, Indices (CFDs only)
MetaTrader 5
Disclaimer: CFD Service. Your capital is at risk.
Bottom of the market fees on forex, CFDs and commodities with 24/7 quality customer service.
ACY Securities CFD
$50
$50
No commission
Australian Stocks, Bonds, Commodities, Cryptocurrencies, ETFs, Forex, Global Stocks, Indices, Metals (CFDs only)
MetaTrader 4
MetaTrader 5
Disclaimer: CFD Service. Your capital is at risk. Trade over 2,000 products across CFDs, forex, indices, metals, shares, commodities and cryptocurrency, starting from as low as $50 a trade.
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Trading CFDs and forex on leverage is high-risk and you could lose more than your initial investment. It may not be suitable for every investor. Refer to the provider’s PDS and consider the risks before trading.

Name Product Price per trade Inactivity fee Asset class International
eToro
Finder AwardExclusive
eToro
$0
US$10 per month if there’s been no log-in for 12 months
ASX shares, Global shares, US shares, ETFs
Yes
Finder exclusive: Get 12 months of investment tracking app Delta PRO for free when you fund your eToro account (T&Cs apply).
CFD service. Capital at risk.
Join the world's biggest social trading network when you trade stocks, commodities and currencies from the one account.
CMC Invest
Finder Award
CMC Invest
$0
$0
ASX shares, Global shares, Options trading, US shares, ETFs
Yes
$0 brokerage on US, UK, Canadian and Japanese markets (FX spreads apply).
Trade over 45,000 shares and ETFs from Australia and 15 major global markets. Plus, buy Aussie shares or ETFs for $0 brokerage up to $1,000 (First buy order of each security, each day - excludes margin loan settled trades).
Moomoo Share Trading
US$0.99
$0
ASX shares, Global shares, US shares, ETFs
Yes
Finder exclusive: Get $100 to trade when you deposit $1,000, or $200 when you deposit $5,000 or more. Earn 6.8% p.a. on uninvested cash. T&Cs apply.
Trade shares on the ASX, the US markets and buy ETFs with Moomoo. Plus join a community over 20 million investors.
Tiger Brokers
US$2
$0
ASX shares, Global shares, US shares, ETFs
Yes
Finder exclusive: 10 no-brokerage US or ASX market trades in the first 180 days + 7% p.a. on uninvested cash with first deposit of any amount, plus US$30 TSLA + US$30 NVDA shares with deposits up to AU$2000. T&Cs apply.
Trade Australian, US and Asian stocks with no minimum deposit on Tiger Broker’s feature-packed platform.
Webull
US$0.25
$0
ASX shares, Global shares, Options trading, US shares, ETFs
Yes
Get advanced research and trading tools with $0 brokerage and free lvl 2 NASDAQ stock data for 30 days. T&Cs apply.
Trade ASX and US stocks and US options, plus gain access to inbuilt news platforms and educational resources. You can also start trading for less with fractional shares.
Saxo Invested
US$1
$0
ASX shares, Global shares, Options trading, US shares, ETFs
Yes
Access 22,000+ stocks on 50+ exchanges worldwide
Low fees for Australian and global share trading, no inactivity fees, low currency conversion fee and optimised for mobile.
Go to site
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Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

Important information: Powered by Finder.com.au. This information is general in nature and is no substitute for professional advice. It does not take into account your personal situation. This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for most investors. You do not own or have any interest in the underlying asset. Capital is at risk, including the risk of losing more than the amount originally put in, market volatility and liquidity risks. Past performance is no guarantee of future results. Tax on profits may apply. Consider the Product Disclosure Statement and Target Market Determination for the product on the provider's website. Consider your own circumstances, including whether you can afford to take the high risk of losing your money and possess the relevant experience and knowledge. We recommend that you obtain independent advice from a suitably licensed financial advisor before making any trades.

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