Brokers & Accounts · Beginner · 5 min

Understanding costs: fees, spreads, payment for order flow

You can list the costs of a trade beyond the commission, add them up for a round trip, and explain what payment for order flow is.

Zero commission, not zero cost

Commission-free trading is advertised everywhere. Often the commission really is zero. But every trade still costs something, and the other costs are rarely printed in large letters.

Costs matter more than most beginners think. Every trade has to earn its costs back before it earns anything, and small amounts add up quickly when you trade often. This lesson lists what you actually pay and how to add it up.

Every line of the bill

The costs of a trade fall into a few groups:

Commission: a fixed or percentage fee per order, charged by the broker.
Spread: the gap between bid and ask, as covered in the lesson on spreads. You pay it on every round trip, even with zero commission.
Currency conversion fee: when you buy an asset in another currency, the broker converts your money, often with a markup on the exchange rate. You pay it twice, on the way in and on the way out.
Running costs: custody fees for holding securities, inactivity fees, interest on margin loans and overnight financing on leveraged positions.

A broker's income can also come from where it sends your orders. With payment for order flow, a broker receives money from a market maker or trading venue for routing client orders there. Critics point to the conflict of interest: the broker may be paid for routing, not for getting you the best price.

Rules differ by region:

EU: a 2024 reform of MiFIR bans payment for order flow for retail clients. Member states could allow it for domestic firms until 30 June 2026 at the latest, so the ban now applies everywhere in the EU.
US: it is allowed, but brokers must publish quarterly reports under SEC Rule 606 that describe these payments.

In the EU, MiFID II also requires firms to tell you their costs and charges in advance and to report them to you afterwards, as amounts and percentages.

A round trip in numbers

A fictional trader with a euro account buys a US share worth 2,000 and sells it a week later at the same price.

Commission: 1 per order, so 2.
Spread: 0.05% of the value, so 1.
Currency fees: 0.25% on each conversion, so 5 in and 5 out, 10 in total.

The round trip costs 13, or 0.65% of 2,000. The price has to rise by that much before the trade is even at zero. The biggest cost is not the commission, but a line many people never look at.

Common mistakes

Comparing brokers by commission only. Add up all costs for the trades you actually make.
Forgetting the currency fee. It applies twice and can be the largest cost on foreign shares.
Ignoring running costs. Custody, inactivity and financing fees accrue even when you do not trade.
Trading often in small sizes. A fixed fee of 1 is 0.1% on 1,000 but 1% on 100.
Not reading the cost report. In the EU it shows what you paid. Compare it with what you expected.

The takeaway

The commission is only one line. Spreads, currency fees and running costs add up, and in the EU, firms must show you all of them.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

1Tap the largest cost of this round trip.

Tap the chart.

The currency fees, paid on the way in and on the way out, cost five times the commission.
2What is payment for order flow?

The broker is paid for routing your order to a particular place. Critics see a conflict with getting the best price for you.
3What is the status of payment for order flow for retail clients in the EU today?

The 2024 MiFIR reform bans it for retail clients. Member states could allow it for domestic firms until 30 June 2026 at the latest.
4You buy and sell a share worth 2,000 and pay 13 in total costs. How far must the price rise to break even?

13 ÷ 2,000 = 0.65%. Every trade has to earn its costs before it earns anything.

of 4 correct.