The three costs: spread, commission, swap

Account A charges no commission but adds 1.6 pips to the spread on EUR/USD. Account B charges 0.4 pips and a commission of $7 per standard lot for the round trip. On 1 standard lot, Account A costs 16 units of the quote currency. At 1.0850 that is 16 divided by 1.0850, about 14.75 units of the base currency. At 155 KSh per dollar, that is about KSh 2,286. Account B costs 4 units of the quote currency, about 3.69 units of the base currency, or about KSh 572, plus commission of $7 times 155, which is KSh 1,085. The total for Account B is KSh 1,657. The account with the tighter spread is cheaper here by about KSh 629.

Now change the size. On 0.1 standard lot, Account A costs one tenth of KSh 2,286, which is about KSh 229. Account B costs one tenth of KSh 572, about KSh 57, plus the same $7 commission, which is KSh 1,085. The total for Account B is KSh 1,142. The no-commission account is now cheaper by about KSh 913. The commission is fixed per round trip, so it does not shrink with the trade size. The spread cost does shrink with the trade size. This is why the cheaper account depends on how large your typical trade is.

The swap is separate from both. A broker may charge a different swap on each account type, and the swap can be positive or negative. A positive swap adds money to the account for each night the position stays open. A negative swap takes money out. You cannot tell which account is cheaper overall until you add the swap for the number of nights you expect to hold. For a trade closed the same day, the swap is zero on both accounts. For a trade held for a week, the swap may be larger than the spread and the commission together. Check the swap rate on the account type you are considering, not just the spread.

A cost on its own tells you little. Compare it with the distance the price must travel before the trade breaks even. On 1 standard lot of EUR/USD, the spread of 1.2 pips and the commission of $7 together cost about KSh 2,799, as the page shows. One pip on 1 standard lot is 10 units of the quote currency. At 1.0850, that is 10 divided by 1.0850, about 9.22 units of the base currency. At 155 KSh per dollar, one pip is about KSh 1,429. The break-even distance is KSh 2,799 divided by KSh 1,429, which is about 1.96 pips. The price must move in your favour by about two pips before the trade is level.

Now add the swap. If you hold for three nights at KSh 300 per night, the swap is KSh 900. The total cost becomes KSh 3,699. The break-even distance becomes KSh 3,699 divided by KSh 1,429, which is about 2.59 pips. Each extra night adds KSh 300 divided by KSh 1,429, which is about 0.21 pips to the break-even distance. A trade you plan to hold for two weeks carries a break-even distance of about 1.96 pips plus 14 times 0.21 pips, which is about 4.9 pips. If your expected move is smaller than that, the trade starts from behind.

The same arithmetic works on a smaller size. On 0.1 standard lot, the spread and commission cost one tenth of KSh 2,799, about KSh 280, but the commission part does not shrink if it is fixed per round trip. Check the commission terms on your account type. The break-even distance in pips is the total cost in KSh divided by the value of one pip in KSh at your trade size. Because both the cost and the pip value scale with size when the commission is proportional, the break-even distance in pips stays similar across sizes. When the commission is fixed, the break-even distance in pips is larger on smaller trades. This is a reason to compare the cost in pips, not only in shillings.

The spread is charged at entry and at exit. The price you receive when you open is worse than the mid price by half the spread, and the price you receive when you close is worse by the other half. The total spread cost for the round trip is the full spread. You do not see a separate line for it on your statement. It is already inside the prices you traded at. This is why the spread is easy to overlook. The commission, when it applies, appears as a separate charge on the statement. The swap appears as a separate charge or credit for each night the position stays open.

The swap is applied at a set time each day, usually when the market rolls over. A position opened after that time may not be charged until the next day. A position closed before that time may avoid the charge for that night. Some brokers apply a triple swap on one day of the week to cover the weekend. The exact day and the exact time vary between brokers. The swap rate itself varies between brokers and between account types. It also changes with market conditions. The rate you see today is not a promise for next week. Check the swap rate on the platform before you hold a position overnight.

The commission varies between brokers and between account types at the same broker. Some accounts charge a commission and a tighter spread. Some charge no commission and a wider spread. Some charge a commission only above a certain monthly volume. The commission may be quoted per side or per round trip. A commission of $3.50 per side is $7 for the round trip. Read the terms as they are written. The regulator, the CMA, requires brokers it licenses to disclose their fees. The CMA does not set the fees. It requires that you can find them. If a fee is not clear, ask the broker in writing before you trade.