Is Forex Trading Really Commission Free?

Forex brokers often tout their services as being commission free. A closer look at the inner workings of the forex market reveals that forex trading is far from free. In fact, the currency market is one of the most expensive markets to trade.
Most forex brokers don't charge a commission to transact a trade. These brokers often market their services as being commission free, but this claim isn't entirely true and is often misleading.
In the forex market, like every other financial market, there is a bid and an ask. The bid is the price at which you can sell a currency pair and the ask is the price at which you can buy a currency pair. The bid and ask fluctuate, or move higher and lower, as the currency pair fluctuates.
The difference between the bid and the ask is known as the spread. You pay this difference every time you transact a trade in a currency pair. The wider the spread, the more you pay to place the trade.
The spread across most forex brokers for the EUR/USD, for instance, amounts to $20 or $30 for a single standard lot. It's much higher for the more illiquid pairs such as the cross rates like the GBP/JPY. Spreads for this famous cross rate can reach upwards of $80 for a single standard lot.
A standard lot is usually about $1,000 in equity. So think about this for a moment: A single trade in the GBP/JPY costs you about 8 percent right off the top. Put another way, the moment you click a trade through in the GBP/JPY you're down by about 8 percent! That's an expensive trade.
In all reality, forex trading is not commission free. The bid and ask spread, in fact, is the commission. It's an extremely high commission, or transaction cost, when compared with other markets like stocks, mutual funds, bonds, options, and even futures, especially when looking at the spreads associated with the cross rates, exotics, and other illiquid currency pairs.
One way to minimize the transaction costs in the forex market is to focus your trading in the most liquid pairs. These pairs include the EUR/USD, GBP/USD, USD/JPY, EUR/GBP, EUR/CHF, USD/CAD, and EUR/JPY.
Another way to minimize transaction costs in the forex market is to reduce your trading frequency, or the number of trades you place. A hyper-active day trading strategy, for example, is an extremely expensive way to try to make money in the forex market. The mountain of transaction costs that you accumulate through day trading often renders the strategy entirely useless.
You might instead focus on a swing trading approach, one with which you might take a few signals per week and hold on to positions for days or weeks at a time. An even more hands-off, and cheaper, way to trade the forex market is through a trend following approach. This type of system might generate signals infrequently, but you give yourself the opportunity to ride huge trends that can produce big profits.