Transaction Costs Are Low

The cost of a transaction is typically built into the price in the forex market in the form of the spread. Forex brokers pocket the spread as their payment for facilitating the trade.

Spreads are measured in pips. For most currencies, a pip is the fourth place after the decimal point, or 1/100 of a percent. (For trades involving the Japanese yen, a pip is the second place after the decimal point, or 1 percent.)

In a forex trade, if the bid price was 1.3244 and the ask price was 1.3246, the spread for the transaction was 2 pips.

Brokers may also charge a commission, either a flat fee or one based on a percentage of the amount of the transaction. 

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