You've probably heard the term, "It takes money to make money." One of the first things you should look at when getting involed with the Forex markets are the costs. While there are many costs to trading forex, most costs are categorized in three ways:
Explicit Costs, Implicit Costs and Optional Costs
These are the fees your broker charges. Examples of explicit costs include commission, spread, margin costs, account and management fees, software fees, and data fees.
Implicit costs will be costs that are not charged by the broker, but by the market. For example, a losing trade could be considered an implicit cost. Other implicit costs include slippage, gaps, opportunity costs, etc.
Optional costs are just that – they’re optional – they are services that may help you make better trading decisions. Optional trading costs include education, better technology, newsletters, trading systems, or advisory services.
As with anything, trading costs can get expensive. However, it’s not necessary to pay high costs while trading. You should be thorough when calculating your cost of trading forex; here are some of our tips for keeping your trading costs low.
1) Take your Time
To beat the high explicit costs of trading, take time selecting a good broker: be selective and do your homework. Brokers can be tricky at masking fees, so there is no better way to understand the true cost than by opening a small account and testing them out.
2) Develop your Skills
Implicit costs are kept in check by improving your knowledge and trading skills. Take time to develop your skills: observe, practice, and learn. Companies like the Apiary Fund provide excellent education and skill development training to mitigate your risk and costs while you’re developing your skills.
3) Be Picky
Additional trading service (online education, newsletters, advisory services, etc.) may or may not help you improve as a trader. When deciding what to spend on optional costs, analyze your trading and decide what you want/need before you see what's available. Also, be wary of extraordinary claims - every body is trying to make a living, but just be aware of whether they are offering an real, honest product or using emotional marketing strategies to make a quick sell.
It’s important to know that there will always be costs to trading forex. These costs should not discourage you from trading, but encourage you to be a better trader. The benefits can far out-weigh the expense if you’re willing to be careful, and understand the costs before you dive in!
About Apiary Fund
Located in Orem, Utah, Apiary Fund is a crowd sourced fund management company that develops successful investors and gives them the opportunity to create flexible income by managing a small portfolio of company money. Through technology and education, Apiary empowers traders to work toward their path to success in the financial markets.