What is the Average Industry Commission for a Forex Trader?

The average industry commission for a forex trader can significantly vary based on the broker, trading platform, and the type of account. Generally, forex brokers earn money through multiple channels, including:

Spreads

Spreads are the difference between the bid and ask price. This is the most common method by which brokers charge for trades. Spreads can range from 0.1 pips for major currency pairs when dealing with a market maker to several pips for less liquid pairs.

Commissions

Some brokers charge a flat commission per trade, which can range from 2 to 10 per lot (100,000 units of the base currency) depending on the broker and the account type. This fixed cost is another way brokers generate revenue.

Other Fees

These can include various fees such as overnight financing fees, swap rates, withdrawal fees, or inactivity fees. Identifying and comparing these costs across different brokers is essential for traders to find the best fit for their trading style.

In summary, while many brokers offer commission-free trading with wider spreads, those that charge commissions can do so at widely varying rates. It is crucial for traders to research and compare these costs to find the optimal broker.

Performance Beyond Monthly Returns

Performance is not just about monthly returns. Institutional and high net worth investors prefer earning 15% annually from a manager with less volatility and portfolio drawdown over 100% annually from a manager with high volatility and portfolio drawdown.

Furthermore, performance also varies with scale. A small retail trader with 10:1 actual leverage could earn 1-2 pips per day. Scaling up becomes more challenging as the primary focus shifts from growth to protecting principal. This demonstrates the importance of risk management as capital increases.

Key Metrics for Measuring Success

The basic measurement relevant to you is not the percentage return per year. To make more money and remain consistently profitable, it's essential to take on more trades.

Your annual return can be calculated as follows:

Number of trades multiplied by the expectancy per trade Expectancy per trade is calculated as: Total profit in R (risk) divided by the number of trades.

R is the risk you take on each individual trade, represented as the number of ticks or pips you will lose if your initial stop loss is hit. For example, buying AUDUSD at 0.7000 with a stop at 0.6900 means you risk 100 pips. If you end up making 200 pips, your R for the trade is 2.

An expectancy of 0.15 or above per trade would be good, but not exceptional. A 0.2 expectancy is considered pretty good, while 0.3 is considered rockstar level performance.