Brokers by Type
Brokers with Low Spreads: A Crash Course for Traders
Spread in Trading: The spread is the difference between the buying and selling price of a financial instrument. It exists in all cases. If the spread is zero, buy and sell transactions cancel each other out.
Traders should understand that a broker promising zero spreads is likely a scam. It’s just not that simple.
For an average broker, the spread is higher than on the market. This includes a fee for service. In other words, the broker profits twice—when the trader enters and exits the market.
Another way brokers make money is through commissions. They offer a market spread but charge a fixed fee for opening and closing positions.
A third option is a commission plus an increased spread. With reputable brokers:
- The commission is much lower than those who charge only a commission.
- The spreads are narrower than those who don’t charge a commission.
Compared to competing brokers, these trader expenses can be considered average.
Calculating Commissions: Commissions are calculated based on the trade volume. For example, $7 per lot for a full round turn. This means the trader pays $3.50 to open and close a lot position. This is advantageous for larger trade volumes during strong trends.
Brokers with Low Spreads and No Commission: What Does It Mean?
When the spread is low and the broker charges no commission, the broker:
- Simulates trading and embezzles trader funds. Why would a broker take spreads and commissions if they could take it all?
- Deceives traders. The broker promises low spreads but inflates them during trades. This reduces trader profits and increases losses.
Market spreads can widen during strong trends due to an imbalance between buyers and sellers.
Such occurrences are quite rare, especially in liquid markets like the forex market. If your broker regularly widens spreads during normal market movements, they’re likely fraudulent.
Found brokers with the lowest spreads? Investigate the reasons. Honest brokers don’t work for free either. They need funds too. How to understand the situation? Open a minimum deposit and observe price behavior at different time intervals.
Low Spreads of Forex Brokers: A Marketing Tactic That Works
When brokers promise low spreads, it applies to the most liquid instruments, like EUR-USD.
The more liquid the market, the lower the spread. If an asset lacks high liquidity, like CFDs, indices, commodities, cryptocurrencies, the spread can be enormous. This includes brokers that offer them.
If a broker promises low spreads for all assets, don’t believe it. They’re trying to deceive you.
Narrow Spreads: What Are They?
What spread can be considered narrow? It depends on the asset type. For major pairs, it’s 0.01 pips. For exotics or crosses, 5 pips is excellent. For crypto pairs, it can reach 5000 pips.
The spread for a specific instrument can be considered narrow only if it’s significantly lower than most brokers on the market. Sometimes this plays a significant role in trading and reduces risks.
Who Benefits from Narrow Spreads?
Pip scalpers and day traders are the biggest fans of narrow spreads. These strategies require high technical complexity, a good broker connection, minimal order execution delays, and reliable trading software.
Scalpers profit from multiple short-term positions. Typically, the profit from each trade is a few pips, rarely more than 10. That’s why the narrower the spread, the better.
Scalpers must consider the commissions charged by brokers with low spreads. For this, they need to allocate a few pips of profit.
For traders with medium and long-term positions, narrow spreads aren’t essential. These positions aim for tens or hundreds of pips in profit.
Low spreads are crucial for day traders of liquid assets who avoid positions during strong market trends. Spreads can widen significantly, disrupting trading strategies.
Rating of Brokers with Low Spreads
Top brokers offering narrow spreads are those with reasonable commissions who operate legally. Scalpers and intraday traders use them.
How to choose a reliable broker? Traders should consider the spreads of financial instruments they want to trade. There’s a risk that a specific broker’s spreads may be higher than competitors’, resulting in losses.