Recently, there has been quite a lot of my subscribers who have inquired about spreads and which broker is the best based on spread costs. It’s easy to give you all an answer for which one is the best broker based on spreads since it’s all just numbers, however, to make sure that my subscribers can get reliable information as well as throughout understanding of spreads, I’m writing this article to furthermore answer many of your questions and give you my professional opinions about the topic at hand.
In forex trading, spread is defined as the difference between the price you buy and the price you sell. For instance, US dollar is sold at the price 1.12345 and you can sell it at 1.12445. The spread now is 0.001. When you trade forex, you mostly pay the brokers by spread. Therefore, traders will look for broker with low spread. To understand why different brokers have different spreads and who are the low spread brokers, continue reading.
THE DIFFERENCE BETWEEN SPREAD AND COMMISSION
There are two main types of forex accounts that all traders should know. They are regular account and ECN account. Almost all brokers have these 2 types.
When you trade with regular accounts, the brokers don’t charge you commission. The main factor to decide your trading cost is spread.
When you trade with ECN accounts, the spreads now are nearly zero. Therefore, brokers have to charge you commission. Now, you pay them by commission, not spreads.
Regular accounts are for normal traders while ECN is for experts only. Depends on your trading level, you can choose which account that suit you most.
WHO NEEDS THE LOWEST SPREAD BROKERS?
Low spread brokers are especially appealing to these 2 types of traders: scalpers and long-term investors.
Scalpers are traders whose trading style involves opening and closing large quantity of trading positions within a short amount of time. Traders who usually keep their positions open for less than a month are scalpers, while long-term investors are traders who have their positions open for longer than a month.
This type of trader earns only some pips for each order, so they prefer to choose brokers with low spreads and commissions.
This type of trader cares more about swap fees than spread and commission. Because they earn more than hundreds of pips for each position, spread and commission fees don’t really matter that much. However, because the position is opened for a long period of time, they’d have to pay a large amount of swap fees, sometimes up to 90% of their profit, which is why most of the long-term investors prefer brokers with low swap.
Low spreads are for?
If you are scalpers, spread and commission are important.
If you are long term investors, don’t care about spread.
WHY BROKERS HAVE DIFFERENT SPREADS?
Here are the spreads for EUR/USD of the top forex brokers:
|Broker Name||EUR/USD spread||Regulation|
|Exness||0.7 Pip (Classic account)||CySEC, FCA|
|XM||0.8 Pip (Ultra Low account)||FCA (UK)|
|Hotforex||1.1 Pip (Premium account)||Vincent|
|FXTM||1.7 Pips (Standard account)||Belize|
|Forex.com||1.8 Pips||NFA (US)|
|FxPro||1.7 Pips||FCA (UK)|
As you can see in the table, the CySEC broker which is Exness has the lowest spread which is 0.7 pip, while the US and UK brokers hold the highest spreads (1.7 – 1.8 pip). The US and UK brokers’ spreads are double that of Exness’.
The reason for this is because of the US and UK regulators. The US and UK regulators don’t allow their regulated brokers to offer high leverage or bonuses while charging their regulated brokers relatively high regulation fee. This in turn makes the US and UK brokers to have no choice but to charge their customers more by charging more spread and commission.
- If you are a scalper from Asia, Exness is the best for you.
- If you are from African countries, XM and FxPro are the best ones.
- If you are an U.S. trader, Forex.com is the best.
- If you are from Europe, XM, FxPro, and Exness are the best.
>> Top best low spread forex brokers [show more]
HOW TO CHOOSE THE LOWEST SPREAD BROKERS
When you’re considering a broker that has low spread, you should also take some other criteria into consideration such as:
- Regulations. You should always prefer the regulated brokers over the unregulated ones. A regulation from your country is the best. However, if there isn’t any broker that is regulated in your country, you should choose another popular, reliable and low spread broker.
- Brokers with local payment methods. For brokers that don’t offer local payment supports, you’d have to deposit and withdraw via famous payment methods. All of them cost about 2 – 4% of your total deposition/withdrawal so it’s best advised to look for a broker that has local payment system to save yourself the hassle.
- Low trading cost.
- Great local support.
Choosing the lowest spread brokers is a must if you want to succeed in forex trading. However, based on what type of trader you are, choose carefully and thoughtfully.
Synthesized by top4forexbrokers.net