More and more individuals are seeing Forex not only as a new way to diversify their portfolio, but are also finding that it is becoming the most profitable component of their investments. And that's because of the many advantages Forex offers over other markets like stocks or commodities. Here's what you will typically see advertized about Forex:

• Unparalleled liquidity. It is the largest financial market in the world by far. Almost $2 trillion being traded daily!
• Excellent leverage potential. Individual investors have access to leverage of 100:1 and even 200:1

• No Commissions 
• Low trading costs.

Like any trading, there are costs involved, and, while these may be much lower than they used to be, it is important to understand what those are.

Let's start by looking at stock trading, something that most of us investors are pretty familiar with. When trading stocks, most investors will have a trading account with a broker somewhere and will have investment funds deposited in that account. The broker will then execute the trades on behalf of the account holder, and of course, in return for providing that service, the broker will want to be compensated. With stocks, typically, the broker will earn a commission for executing the trade. They will charge either a fixed dollar amount per trade, or a dollar amount per share, or (most commonly) a scaled commission based on how big your trade is.

With Forex trading, the brokers constantly advertise "no commission". And, of course that's true - except for a few brokers, who do charge a commission similar to stocks. But also, of course, the brokers aren't performing their trading services for free. They too make money.

The way they do that is by charging the investor a "spread". Simply put, the spread is the difference between the bid price and the ask price for the currency being traded. The broker will add this spread onto the price of the trade and keep it as their fee for trading. So, while it isn't a commission per se, it behaves in practically the same way. It is just a little more hidden.

The good news though is that typically this spread is only charged on one side of the transaction. In other words, you don't pay the spread when you buy AND then again when you sell. It is usually only charged on the "buy" side of the trades.

So the spread really is your primary cost of trading the Forex and you should pay attention to the details of what the different brokers offer.

The spreads offered can vary pretty dramatically from broker to broker. And while it may not seem like much of a difference to be trading with a 5 pip spread vs. a 4 pip spread, it actually can add up very quickly when you multiply it out by how many trades you make and how much money you're trading. Think about it, 4 pips vs. 5 pips is a difference of 25% on your trading costs.

The other thing to recognize is that spreads can vary based on what currencies you're trading and what type of account you open.

Also, some brokers will offer different spreads for different types of accounts. A mini account, for example, may be subject to higher spreads than a full contract account.

And finally, because the spreads really are the difference between bid prices and ask prices as determined by the free market, it is important to recognize that they are not "guaranteed". Most brokers will tell you that there may be times during periods of low demand, or very active trading when the spreads widen and you will be charged that wider spread. 

These do tend to be rarer situations because the volume in the Forex market is so large and demand and supply are generally quite predictable. But they do occur, especially with some of the lesser traded currencies. So it's important to be aware of that.

So be sure to consider carefully what currencies you are going to be trading, how frequently, and in what type of account and use those factors to help you decide which broker can offer you the best trading costs and allow you to keep more of your returns as net profits!