forex-scalping.com

Funding an account in a different currency from the account base means the broker or payment processor converts the money. The rate used includes a margin, sometimes 1 to 3 percent, which is a loss before the first trade.

The same happens on withdrawal. Withdrawing in a currency other than the account currency means another conversion, another markup.

For a scalper, the cost may rival months of trading spreads. A 2 percent conversion cost on a 5,000 deposit is 100 dollars, equal to the commission on about 14 lots.

Ways to reduce it include choosing an account currency matching the bank account, using payment methods that offer mid-market rates, and avoiding frequent small transfers.

Brokers' fee schedules often list deposit and withdrawal charges separately from the conversion margin, which is easy to miss. The actual cost is visible by comparing the amount sent with the amount credited, after allowing for the mid-market rate on the day.

It's a dull topic, but with every other cost under control, this one can be the biggest remaining leak for traders who deposit and withdraw regularly.

What was the real cost of moving money in and out of the account, compared with the quoted fees?

I only worked this out when I sat down with my bank statements at the end of last year. My account was in dollars and my bank account in pounds, and I had moved money in and out maybe a dozen times. The broker's fee page said deposits were free and withdrawals cost a flat amount, so I assumed the total was small.

When I compared what left my bank with what landed in the account, using the mid rate for each day, the gap averaged a bit over two percent each way. Over the year it came to more than I had paid in commission for about three months of trading, which was a nasty surprise for someone who obsesses over a tenth of a pip.

I switched the account to a pound base at the next opportunity and now move money far less often, in larger amounts. I also keep a small sheet that logs sent and credited amounts, so the leak is visible instead of hidden.