Why pay the spread too?

Discussion in 'Trading' started by cscott, Jul 23, 2006.

  1. cscott


    Since we already pay broker commission to enter and exit a trade, then why is the spread charged on top of that. IOW, why don't brokers just charge the spread, and make bid/ask the same price? It seems that most brokers charge spread plus commission fees. Is this just the cost of doing business? Do the commissions for entering/exiting trades and commissions from the spreads both go to the broker, aside from the small amount that goes to the exchange?

    In the above, I'm referring to stocks, futures, and forex. However, for forex, Oanda says it only charges the spread and no commission, though I doubt the reality of Oanda's 1.5 pip spread on EURUSD.
  2. In forex brokers are also considered dealers, because when you make a trade they are taking the other side of that trade (which means they're earning the spread).

    Your broker has nothing to do with the spread on exchange traded products; that's determined by the cumulative bids/offers of all the traders for a given product. In that case, your broker charges a commission simply for bringing your order to the exchange (canceling orders, simulating stops. etc.); they don't earn anything from the spread because they're not a party to your trade.