Commission Per Lot vs. Commission Per Million Explained

When trading Forex, understanding the various costs involved is crucial for managing your profitability. Beyond the spread, many brokers, particularly those offering ECN or raw spread accounts, charge a commission. These commissions are typically presented in one of two main ways: as a fixed amount per lot traded or as a percentage of the total traded volume, often expressed as 'per million' dollars or the account's base currency.

This article will explain both commission structures, how they are calculated, and what their differences mean for you as a trader.

Understanding Commission Per Lot

Commission per lot is a straightforward way for brokers to charge for their services. A 'lot' in Forex trading refers to a standardized unit of currency. A standard lot is 100,000 units of the base currency, a mini lot is 10,000 units, and a micro lot is 1,000 units.

How it Works

With this model, the commission is a fixed amount for each lot (or fraction of a lot) you trade, regardless of the currency pair or its current market price. This amount is usually charged when you open a position and sometimes again when you close it, meaning the stated commission might be per 'round turn' (opening and closing a trade) or per 'side' (half the round turn).

• Example: If a broker charges $7 per standard lot for a round turn, and you trade 1 standard lot, your commission will be $7. If you trade 0.5 standard lots (50,000 units), the commission would be $3.50. This amount remains constant whether you are trading EUR/USD or GBP/JPY.

Understanding Commission Per Million

Commission per million, often abbreviated as 'per million', ties the commission directly to the notional value of your trade. This means the commission scales with the total monetary value of the currency being traded.

How it Works

Instead of a fixed amount per lot, the commission is calculated as a certain dollar amount (or other base currency amount) for every million units of the base currency traded. This method directly reflects the volume of money being exchanged.

• Example: If a broker charges $40 per million USD traded, and you open a position worth $100,000 (which is 0.1 million USD), your commission would be $4. If you trade $500,000 (0.5 million USD), the commission would be $20. The commission changes based on the actual dollar value of your trade.

On average, brokers might make about $40 - $200 per million dollars traded. Some brokers, like RannForex, aim for lower revenue per million traded, which can translate to better conditions for clients. According to RannForex's statistics, their revenues per million traded are significantly lower than the industry average, often around $10 per million traded. You can explore more about how commissions are generally calculated in Forex in articles like How Is Forex Commission Calculated?

Key Differences and Implications for Traders

The primary difference lies in how the commission scales with your trade size and the impact of the currency pair's value.

• Trade Size: Commission per lot is fixed per unit (lot), making it easy to predict for a given lot size. Commission per million, however, fluctuates with the actual monetary value of your trade.
• Currency Pair Value: With commission per lot, the cost is the same for a standard lot of EUR/USD as it is for a standard lot of USD/JPY, even though their underlying monetary values might differ slightly due to exchange rates. With commission per million, the cost for a trade of 1 standard lot will vary depending on the current exchange rate of the currency pair, as the notional value of the trade changes.

Impact on Cost Calculation

For traders, understanding these differences is vital for accurately calculating trading costs and comparing brokers. A broker advertising a low