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One of the most popular is the Instant Execution mode. If you apply the Instant Execution mode and the spread is fixed, you cannot avoid requotes. For scalpers, this is even more dangerous than slippage, because a scalper can destroy the entire system due to one failed order.
Floating spread is the most common type of spread nowadays. It is popular because it is profitable for all parties taking part in the transaction. Brokers and dealers can regulate and adjust it fast to changing market conditions, which allows solving 2 problems at a time: provide clients with higher-quality services and earn at the moments when the spread increases. This spread fluctuates in a certain range based on changing market conditions.
This type of spread is favourable to manual trading. The above chart displays variable spreads for major currency pairs. As you see, a floating spread seldom exceeds even 1 pip and in most cases, it is from 0. The above screenshot displays the spread in the trading terminal window.
At the time of the snapshot, the spread between the buy and sell prices is only 0. Trading with such a low spread is very beneficial for short-term trades, where the spread is one of the main cost items. Narrow spreads during most of trading session. As we know trading hours in forex are provided by four large exchanges. And since most of the time falls on the work of the European and American trading sessions, variable spreads at this time will be minimal and can widen only in moments of serious shocks, which do not happen so often.
No requotes. I wrote about requotes as a drawback of fixed spreads. Well, in trading with variable spreads everything is vice versa, your trade will be executed in any case. The only risk here is slippage. There could be zero spread. Sometimes, when the market situation is calm and still, nothing special or extraordinary happens, you can catch a moment when there is no spread at all. I have come across such a situation in trading major currency pairs several times. The broker is entirely excluded from the trading process.
Transactions are executed using the No Dealing Desk technology, which completely excludes the broker from the processes of determining spreads, quotes, and other things. Thus, traders can be sure that they deal with real market participants and have access to real exchanges. There could be slippages.
This is perhaps the biggest flaw of the variable spread. At times of increased volatility, your trade will be executed, but the opening price of the trade may differ from the one at which you planned it. This happens when the market price changes so quickly that it sometimes goes right through the orders set in the order book.
Widening spreads in case of low liquidity. During periods when there is no trading activity in the market, for example, during the Asian trading session, spreads widen to a significant size. This also happens before the market trading closes for the weekend. Sometimes the spreads widen so much that they become larger than the fixed ones.
This circumstance matters for traders using robots and scripts. If your trading robot is supposed to enter a lot of trades in a short period, a floating spread could be a reason for a loss in a series of trades. After describing the disadvantages and advantages of both types of spread, I decided to sum up the most important ones in the table below to determine which of them is the best. As you can see in the table, the floating spread has more key advantages. This is quite logical, since variable spreads are a necessary condition to make sure that you are trading in the exchange, and the counterparties are real market participants, not the broker itself.
When trading with a floating spread, you can always find a moment for your trade when you can pay less. The only cost for you will be the commission, which will almost always be lower than the fixed spreads. With popular and large brokers, floating or variable spreads are always very close to the raw market ones. As for me, I have long ago chosen to trade with variable spreads. Moreover, my broker LiteFinance provides a spread as close to raw as possible and in recent years I have not taken it into account at all in my strategy, since it is very small.
If so, it needs to consider the interests of all participants in an exchange operation - a trade. The formula looks as following:. The bank provides you with access to exchange operations and charges you a fee. As for the broker, it is an intermediary in exchange operations that passes your order to the stock exchange and therefore charges a commission for its participation in the process too.
It became possible after ECN trading accounts were created. It provides raw spreads. Actually, trading with no spreads is practically impossible, but this type of account provides for much tighter spreads. As long as the access to such trades is delivered by a broker, its interest is considered as well. These accounts appeared much earlier than ECN. It should be understood that there is no forex with zero spreads.
The exchange always takes its commission. If the broker has a zero spread, then you only have to guess as to how it makes money When it comes to the value of variable spreads, there are several important factors that influence it at a given time. Liquidity of a trading instrument - the ability of goods to be sold or bought fast. On the stock exchange, all the trading instruments are divided into groups based on a number of factors, and liquidity is one of them.
Liquidity means popularity. The more popular a trading tool is the higher its liquidity. The more liquid a trading tool is, the tighter its spread is. The less popular a tool is, the larger the spread is. This is the basic formula, but there may be some adjustments that change the dependence under certain circumstances. The volatility of a trading instrument - the number of price fluctuations per unit of time. The number of price fluctuations is measured in ticks.
The more ticks per time unit, the higher volatility. Of course, an increase in volatility raises the price in points. The higher volatility is, the larger the spread will be during volatility leaps, and vice versa. Again, these are basic characteristics and they may change.
For example, volatility may increase at breakneck speed when fundamental news is published and spreads rise too, and then volatility drops shortly afterward and spreads drop as well. When the spread soars, ad hoc orders may trigger, which may crush the whole trading system afterward. Trading hours - Spread values depend on the part of the day. When a trading instrument is being traded during its main trading session, the spread will be lower than when the main trading session is closed.
We can see that at night, when, for example, the European trading session is closed and the major currency pairs are quoted during the Asian session. The value of spreads is also affected by clearing - the settlement process. It happens at , broker time, and when the stock exchange closes for weekends and holidays.
Spreads normally increase at those moments. This value is determined by brokers themselves based on their own understanding of the market situation. Different brokers provide different spreads. This is one of the reasons why ECN accounts were created.
Less popular brokers set higher spreads while more popular brokers try cutting them as much as possible. It sounds quite promising, but these are just big words actually. What an ordinary trader may claim is partial reimbursement. There exist a lot of spread rebate services. Traders may have a part of the spread paid back. There are several options. To become a participant in a rebate system, you need to register on the site of the service which cooperates with your broker or to trade with a broker which provides a similar interior system.
Every broker sets its own rules for a spread rebate. These rules are quite numerous and they are mainly aimed at counteracting fraudulent schemes. These rules practically exclude micro scalping as almost every broker sets a minimum amount of points between the closing and the opening prices. By and large, this service will be convenient only to those traders who use a medium-term trading strategy which implies trades in a calendar month.
They can be popular with scalpers but not all of their trades are subject to rebates due to strict limitations. Personally, I used those services at the very beginning of my trading career just for understanding what they are like. I often see chats and forums where people look for and compare forex brokers with low spreads. Is there any correlation between the quality of services and spread values? Every client pays a commission per trade, for example, 1 USD.
If there are 10, clients, the broker will earn a lump commission of 10, USD. And how many trades does a client make in a day? Besides profits, big brokers have some expenses too. Remember the main thing: no broker can afford to free its clients from commissions.
Otherwise, they will make losses and go bankrupt soon. Big and reliable brokers can afford to cut spreads to a reasonable extent. Customer acquisition activities and customer loyalty. If there are many clients, there are many trades. And if there are many trades, the broker will have its commission. All is so easy. All that we, traders, need is good trading conditions that satisfy us.
So, we look for brokers that charge the lowest fees. Brokers understand that too. They constantly cut commissions, offer us individual trading conditions, etc. No one will work at a loss. It is partly true, but only partly. The process itself looks like the following: we make a trade on the stock exchange, paying a part of our own money as a deposit.
Next, the broker accepts and executes the trade, transferring it to the stock exchange. If the trade is transferred to the stock exchange, the counterparty in the trade will be the stock exchange, or to be more precise, the bank. In financial terms, the counterparty is an opposite party in a financial transaction that has an obligation to execute the transaction.
To have an obligation means to assume responsibility at the closure of the transaction. In other words: when we earn, our counterparty pays us our profit; when we lose, our counterparty earns. When the trade is transferred to the market, the broker is no longer a participant in it. The broker only earns its commission. But it may be that your counterparty is your broker. If you lose, your loss goes to your broker. Of course, no one will want to pay their own money voluntarily.
Then new brokers may resort to various tricks. For example, they offer zero-spread trading to attract clients. But you need to understand that such conditions will bring losses to the broker. If the client makes profits, such a broker will hardly pay it. The tightest variable spreads are available for ECN accounts with market execution.
According to statistics, there is a ranking of TOP currency pairs with the lowest variable spreads:. You can see variable spreads in real-time on the online platform. Pip spread is indicated there in pips for 5-digit quotes points are the value of the fifth decimal place. If the spread is specified in the 4-digit quotes form, then its value usually looks like this: 0. Immediately after the opening of trade, the current profit column displays a loss equal to the spread value.
If the spread is 2 pips, then in order to go to zero, the price of the selected trading instrument should make 2 pips in the direction you will make a profit in, and further movement will be the income of the trader. An honest broker working with ECN technologies has the main source of income in spread or commission. The value of a floating market spread in the Forex market changes every other second and depends on several factors:.
The higher liquidity a currency pair has, the lower the maximum spread value for it will be. For major currency pairs, the largest spread value rarely exceeds 10 pips, and for exotic pairs, it may reach hundreds of pips. Also, each of the instruments has low liquidity periods in which the average value of the spread will be higher.
As a rule, it is nighttime. Political or economic events affect not only the value of instruments but also the spread. As a rule, in anticipation of economic news, the spread for the corresponding pair may be much higher. For example, during moments of particularly heated discussion of the Brexit issue, the spread for currency pairs with the British pound increased several times.
Brokers set the spread at their discretion. There are several factors contributing to a broker's pricing. What kind of raw market spread does a liquidity provider offer? Did a broker choose to increase the spread or add a fixed commission for each lot traded to receive additional income? The main income of an honest broker is a zero spread or commission, while there are some brokers that work primarily to increase the difference between profit and loss of a client - these brokers may provide fixed spreads to lure clients and make them lose their deposits.
Although they present themselves as zero-spread brokers, it is the opposite, in fact. A good forex spread is something that every trader defines themselves. But in the trading environment, it is customary to call the minimum difference in the purchase and sale prices for an asset a good spread.
If your spread is close to the raw market spread, this will be considered a good spread or the spread will be considered normal. Of course not. Institutional trading involves forex trading of large financial institutions whose transaction volumes are so large that they need constant access to super-liquidity. This liquidity comes at the cost of large spreads. So the retail spread is much lower than the institutional one. But if you still decide, then the easiest way is to search the Internet for special sites that provide a comparative table of spreads offered by various brokers.
On a demo account, the broker provides spreads similar to real ones, so you can compare their spreads online. If the broker provides a spread close to zero, it should earn on the commission. A modern broker has only two ways to make money - spread or commission. If the broker is connected to the ECN system, it provides a raw market spread, which at some points can be equal to 0, but the broker must charge you a commission.
If not, then the broker is deceiving you. Exotic currency pairs are not as popular as major ones. As both parties are responsible for a transaction, less popular currency pairs carry more costs and more risk for the participants in the trading process, and therefore require a higher premium. By expanding the spread on such pairs, market makers simply insure themselves against insufficient liquidity.
This is a completely natural process. Brokers are financial intermediaries, not charities. And for the fact that they accompany your transaction, bringing it to the exchange, they receive their fee, called the spread. The more trades you make and the more money you invest in those trades, the more the broker earns. This is a mutual process. If you make money, the broker also earns.
And if you lose your account due to wrong actions, the broker loses earnings. If we are talking about spread trading in long-term time frames, you can employ any timeframe, as there is no need to monitor your trade every five minutes. However, TradingView offers a big advantage — you can overlay one chart on another, which is impossible in MT4 and MT5, and therefore Forex spread trading is more convenient on this platform. Traders sometimes trade scalping intraday, i. Scalping means making profits from numerous trades executed in a short time.
It takes a lot of energy and by the end of the day, you may feel mentally tired. I believe that trading should not burden you. Spread trading Forex should bring pleasure, both from the process and from the result. Therefore, medium- and long-term strategies are less stressful, you have more time to analyse the price chart before making a trading decision. So, I believe trading in a global timeframe is more comfortable than in a tick chart.
Also, the spread is the difference between the buy and sell prices of the same asset. In economic terms, the spread is the difference between the demand and supply of a financial asset. In simple terms, spread in trading is a fee charged by the broker for executing a trade. Full-time trader and asset manager.
A forex spread is. Live Forex Spreads. Forex brokers spread comparison in real time. Best spread is colored in green, worst spread is colored in red. For overall best spreads. What is a Spread in Forex Trading? · They make money by selling the currency to you for more than they paid to buy it. · And they also make money by buying the.