What are Spreads, Commissions, and Swaps in Trading? | XM Trading Costs Explained

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Spread is the difference between a trading instrument's buy and sell price, and it is the main cost a trader pays when opening a position. In this video, I explain why trading costs matter before you open a trade, covering spread, commission, swap, overnight financing and slippage, with examples for short-term and overnight trading. I also show how to check instrument-specific conditions and use XM calculators to estimate pip value, margin and swaps.

Spreads can widen with lower liquidity, higher volatility, market open and major news events, so the final execution cost may differ from an estimate.


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Chapters
00:00 What is a spread, and how is it calculated?
00:35 How commission and swap charges work
01:10 Why spreads widen or narrow during the trading day
01:45 How to use XM calculators to check costs before trading
02:25 How to calculate net profit after all trading costs

FAQs


What is a spread? It is the difference between the buy and sell price of a trading instrument, and it is the main cost of opening a position.

Why does spread change? It can widen when liquidity is lower or when volatility and news risk are higher, such as around market open or major announcements.

What is a swap? It is an overnight financing adjustment that may be charged or credited depending on the instrument and the direction of the position.

What is the difference between spread and commission? Spread is built into the buy and sell price; commission is a separate, explicit fee charged per trade on some account types.

What causes slippage, and how does it affect trading costs? Slippage happens when an order fills at a different price than requested, usually during fast price moves or low liquidity, which can increase the effective cost of a trade.

How do you estimate trading costs before opening a position? Use a calculator to check the expected pip value, margin required and swap charge for the instrument and position size you plan to trade.

I hope you liked this video. You can also start your trading journey and make a Nayi Shuruat with XM.

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