Why do people trade financial instruments with a spread AND commission?

[Umair]

Hi.. Ive been lurking around here for sometime and this actually is my first post so please dont bash me for a silly question ive observed that traders are more interested in trading markets (stocks options futures cfds) that has spread and a commission too as compared to forex that has comparatively low trading cost (just the spread).. why is that so ? Is it mainly because it is governed through an exchange and people with big amounts feel their money is safe unlike forex that is OTC? Or that volume is known ?
Im not at all advocating forex but just wanted to know whats the catch ..

Btw people on this forum are doing a great job

Thanks

 

[minwa]

Re: why do people trade financial instruments with a spread AND commission ?

FX dosn't mean always lower overall costs.

A EURUSD spread of 2pips, 1.1150 & 1.1152 . A $100k will become $99982.

A SPY (SP500 ETF) of 206 & 206.01 will become $99995.15 after spread, commissions on my IB account is $2.42 for 485 shares, so it will become $99992.7.

So if I had $100k to trade and basing it on pure costs, the share is superior.

 

[Umair]

Re: why do people trade financial instruments with a spread AND commission ?

Could you please elaborate a bit on how u came up with these numbers cuz i got a bit confused..

 

[minwa]

Those were the bid & ask of EURUSD & SPY at the time of writing that post. I just assumed making a transaction and closing it, at the market bid & ask.

So for FX $100k divide by 1.1152 to go long EURUSD then multiplied by 1.1150 to close the position back into base currency (USD in this case). No commissions were subtracted, just 2 pips spread which is very typical of FX.

SPY (share) is pretty simple, $100k divide by the stock ask price, 206.01 to get number of shares, multiplied by the bid (206.00) to sell the shares, then minus the commissions.

 

[Umair]

Ahh got it.. thanks for explaining... but that commission and spread is really low.. ive seen prices that optionxpress, commsec, optionhouse etc offer and thats around $10 for the trip.. and eurusd spreads of 1.5 pips are also easily available.. some even offer around 0.8 pips...
Is it wise for someone with small capital (around $2000) who hasnt been successful at forex yet to look for other markets ? I mean are there better odds keeping in mind that he trades purely on TA ?

THANKS