Forex brokers are compensated two ways. The first is through the bid-ask spread of a currency pair.
For example, when the Euro-U.S. Dollar pair is priced as 1.20010 bid and 1.20022 ask, the spread between these two prices is .00012, known as 1.2 pips. When a retail client opens a position at the ask price and later closes it at the bid price, the forex broker will collect that spread amount.
Secondly, some brokers charge additional fees. Some charge a fee per transaction or a monthly fee for access to a particular software interface or fees for access to special trading products such as exotic options.
The forex industry is regulated by the Commodity Futures Trading Commission and the National Futures Association.1
Competition among forex brokers is currently intense and most firms find they must eliminate as many fees as possible in order to attract retail customers. Many now offer free or very small trading fees beyond the spread.
Some forex brokers also make money through their own trading operations. This can be problematic if their trading creates a conflict of interest with their customers. Regulation has curtailed this practice.