The three costs: spread, commission, swap

The word spread means the gap between two prices. On a platform, AUD/USD is shown as a bid and an ask. The bid is the price at which the platform will buy from you. The ask is the price at which it will sell to you. The ask is always the higher of the two.

The spread is the difference between those two numbers. It is not a fee that appears on a statement. It is already inside the price you receive. When you open a buy, you enter at the ask. When you open a sell, you enter at the bid. The moment the position is open, the platform values it at the other side of the quote, so the position starts slightly below the entry price by the amount of the spread.

A pip is the fourth decimal place for AUD/USD. If the quote moves from 0.6640 to 0.6641, that is one pip. If the ask is 0.66415 and the bid is 0.66400, the spread is 1.5 pips. The spread can widen when news is released or when the market is quiet. It can also be fixed by the broker. Because it varies, check the live quote on your platform rather than relying on a figure from a lesson.

Commission is a separate charge. It is not built into the quote. It is added to the cost of the trade, usually when the position is opened and sometimes again when it is closed. The word comes from the idea of a fee for handling an order. On a platform, it appears as a line item in the trade ticket or in the account statement.

Not every account charges commission. Some accounts have a wider spread and no commission. Others have a narrower spread and a commission. The total cost can be similar, but the two parts are shown differently. The commission is usually a fixed amount per lot, per side, or a small percentage of the trade value. It can be in the base currency of the pair or in your account currency.

For AUD/USD, the base currency is AUD. If a commission is quoted in AUD, it is already in Australian dollars. If it is quoted in USD, you convert it using the current rate. The rate moves, so the converted amount moves too. The broker may round the commission to the nearest cent. Because commission rules differ between brokers, read the product disclosure statement or the fee schedule on the platform.

Swap is the cost of keeping a position open overnight. The word comes from the idea of swapping one currency for another. In practice, a trade in AUD/USD involves borrowing one currency to hold the other. The swap is the interest difference between the two currencies, adjusted by the broker. It is credited or charged to the account at a set time each day, usually when the New York session closes.

The swap rate is quoted in points or in the account currency per lot. It can be positive or negative. A positive swap adds to the account. A negative swap subtracts from it. The direction depends on whether you are buying or selling the pair and on the interest rates of the two currencies. The rate is not fixed. It changes with central bank decisions and market expectations. It also varies between brokers.

For a position held for one night, the swap is charged once. For a position held over a weekend, some brokers charge three nights at once to cover the days the market is closed. The exact day this happens varies. Because the swap is known before you trade, it can be added to the spread and commission to give a total cost. If you plan to hold for several days, that total is the number that matters.