I keep seeing these three terms used interchangeably and I’m not sure if they’re actually different or if I’m overthinking it. This broker mentions all three in their pricing page and I want to make sure I understand what I’m paying for.
Spread is what you pay on entry and exit, right? But then there’s commission which sounds like another fee. And swap is the overnight thing? I’ve tried reading through broker explanations but they’re always vague about how these actually affect my real trading cost.
My main confusion is how rebates fit into this. Do rebates offset all three or just spreads? And when I’m comparing this broker to another, should I be adding all three together or looking at them separately?
Could someone break down exactly what each one is and how they combine to make up my total trading cost?
Three different costs, different timing.
Spread: the gap between buy and sell price when you open or close a trade. Costs you immediately. Typical range: 0.5 to 2 pips depending on currency pair and market condition.
Commission: a flat fee per lot traded, charged separately from spread. Some brokers use this instead of wider spreads. Typical: $2-5 per round turn or 0.3-0.5 pips equivalent.
Swap: interest charged or credited for holding a position overnight. Only applies if you hold past 5pm ET. Usually quoted in pips per day. Can be positive or negative depending on currency pair.
Rebates typically offset spread and commission, not swap. Rebates are calculated on volume traded, so more trading = more rebate, which reduces your effective spread and commission.
To calculate real cost: your spread on entry plus spread on exit plus commission minus rebate equals your cost per trade. Add swap only if you’re holding position overnight.
Most traders overweight spread in their decision and underweight commission. A broker with 0.9 pip spread but 0.8 pip rebate actually costs you less than a 0.6 pip spread with no rebate.
I had this exact confusion when I started. Spent an hour reading broker docs and it didn’t help, so I just opened trades and watched what actually happened.
When you buy EUR/USD, you pay the spread immediately. That bid-ask gap is gone the second you open the trade. With this broker, it’s usually around 1.2 pips in normal market conditions.
Commission sometimes shows up as a separate line item or sometimes it’s just built into a wider spread - depends on the account type. If it exists, it’s charged on top of the spread.
Swap is different because you only see it if you hold the trade overnight, and the amount changes daily based on interest rate differences between the two currencies. Sometimes it’s $2 in your favor, sometimes $5 against you.
Rebates show up as credits in your account, usually daily or weekly. They reduce the effective spread you paid.
So the total cost formula is really: (spread + commission - rebate) for day trades, and (spread + commission + swap - rebate) for overnight positions.
Think of it this way:
Spread is what the broker takes when you open and close the trade. Entry and exit both cost you the spread.
Commission is like a trading fee on top of that. Some brokers charge it separately, others just add it to the spread instead.
Swap is only for overnight positions. It’s like interest you pay or receive for borrowing currency.
Rebates come back to you and reduce most of those costs. They don’t touch swap, though.
When comparing brokers, add spread and commission together, subtract rebate, and that’s your baseline cost. Swap only matters if you hold overnight.
Spread at entry and exit plus commission. Rebate reduces both. Swap is overnight fee.
One practical thing: check what account type and commission structure this broker actually offers. Some brokers advertise low spreads but only on standard accounts with wide commissions. Their ECN accounts might look better initially but require more volume to be worthwhile.
Ask the broker directly what the total cost structure is for your planned trade size and holding period. Don’t rely on their homepage, which always shows the best-case scenario. Get specifics for your actual usage pattern.