Broker to Trading

The spread is the difference between the bid and ask price of a market. This is an important part of the cost of a trade and thus traders may look for Forex spreads which are as low as possible. Some traders may prefer fixed spreads to variable spreads. This article looks at the significance of fixed spreads for Forex traders.

The value of a Forex pair will tend to have a difference between the price at which it is bought and the price at which it is sold. From this difference, providers receive compensation. This difference is called the spread, or in full the bid/ask spread. In some cases the spread may be zero, however.

For shorter terms traders and automated traders the spread can be a significant factor. Thus providers who specialise in automated trading and scalping may offer low bid/ask spreads. In the case of both strategies, the trader may be making short term trades, thus the spread cost might be relatively significant compared with the capacity of the value of the market to change within a short term time period. As variable spreads can range higher, then they may also look for low average spreads.

However other traders may be more interested in stability in the spread of a market, which can be found in spreads which are formatted to stay the same. These kinds of spreads are called fixed spreads and the trade off tends to be the spread cost. That is, variable spreads may tend to range lower or have a low average spreads, while fixed spreads may tend to be fixed at a higher value than the low or the average low (in some cases).

One factor to note about fixed spreads is that they do not necessarily stay fixed, and can vary in volatile market conditions or at certain times. Some providers do say that their spreads will not vary, however it might be the case that a trade placed in volatile market conditions may not get filled (this can also happen with variable spreads).

Providers which offer platforms and accounts for automated traders may also in some cases offer fixed spreads, thus the trader in this case can trade robots with fixed spreads, if this kind of trading is supported with fixed spreads. Fixed spreads however may be more commonly associated with longer term trading and strategies (or at least not strategies such as scalping or automated trading). That is to say, strategies which are less dependent on volatility may seek more stable spreads.

Given that there has been a trend for fixed spreads to go downwards, like variable spreads, then different types of traders may be interested in fixed spreads Forex brokers, with the caveat that some strategies may not be possible, or may be better executed in different account types.

Automated traders and scalpers may wish to find a provider which specialises in robot trading or scalping, and which normally offer tight variable spreads, with a commission charge. The commission charge is a fixed component of the trade, but it is not a spread and is added to the trade by the provider (and is another way for the provider to receive compensation). There can also be other components to the cost of the trade, whether spreads are fixed or variable.