Who doesn’t know spread broker? Every trader who transacts in the forex market will be directly faced with the spread.
However, there are few reviews on the use of broker spreads and their effect on traders as a whole. In this article, we will discuss what spreads are and their role in forex trading.
Also read: What is a Forex Broker?
If we look at a forex quote or price, it is usually always followed by the bid and ask values. Spread Broker is the difference between the selling price (BID) and the buy price (ASK) or sell quotes and buy quotes.
This spread is the income earned by the broker where when we sell, the spread will be charged between 2 points to tens of points depending on the pair used.
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The size of the spread is different in each pair. Even for the same pair, the spreads given can vary from one forex broker to another.
Some forex brokers use a fixed spread broker, which are spreads that do not change under any market conditions. However, there are also those who use a floating spread system, where the spread varies depending on market conditions.
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What are Fixed and Floating Spread Broker?
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At first, forex brokers applied Floating Spread. A floating spread is a spread that changes according to market volatility.
However, trading conditions were uncomfortable when volatility skyrocketed. The spread will jump too. That’s what started the creation of the fixed spread facility (fixed spread). What is a fixed spread?
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Fixed Spread Broker means that the difference between the Bid and Ask prices has been set by each broker, and will not change too significantly. Except, if in the next development, the forex broker feels the need to increase the spread.
Although this spread can be said to be fixed or fixed, the rules of each broker usually add a sentence in the form of a disclaimer that there will be an increase in the spread when there is a very strong fundamental issue affecting the market, where the rate of movement for currency pairs is very fast.
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Fixed Spreads have their own pluses and minuses. The advantage is that stable Fixed Spread costs make money management trading more consistent. The drawback is that Fixed Spread Broker can be bigger than Floating Spreads when the market is calm.
Floating Spread itself also has advantages and disadvantages. For experienced Forex traders, floating spreads are even more attractive.
The rising volatility is the moment we have been waiting for because it is not always possible to make a profit in a very short time.
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When Floating Spread Feels Painful
When there is a change in the spread, for traders who have opened positions at the beginning, of course, this is not a problem because the effect is not too big unless you are in a losing position, the swelling of the spread is very painful.
However, for a trader who places an order to open a position to coincide with an enlarged spread condition, the impact of the spread broker will be very pronounced.
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Because with so many forex traders doing open positions at the same time, sometimes there is a delay in the open position, and of course this is very detrimental for a trader if then the price execution occurs at a different level than expected.
There is a possibility that the spread that must be borne will swell and the desired profit target will not even be obtained because of the delay. For that, pay attention to the spread on the pair you are using before trading currencies.
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Find a Best Forex Broker with a Low Spread
What are low spreads? A low spread is a spread whose value is 0. Do any forex brokers offer low spreads? There is.
Some forex brokers provide Zero Spread account services, which is an account type where the spread is zero, which can allow traders to save on per-transaction costs.
Also read: How to Learn Forex Trading from Zero for Beginners Trader
However, you still need to pay attention to the applicable regulations, because there are usually some special policies that you may need to pay attention to. For example Zero Spread on ECN accounts.
Also read: Types of Forex Brokers: DD, NDD, Hybrid, ECN, or Elite?
There will usually require you to accept trading conditions that are quite different from standard accounts at forex brokers. For more details, please read a more complete review of trading with zero spreads.
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