When trading Forex, you will have heard of spreads or cost of trading. Spreads is the commission that fx brokers earn when they execute a trade for traders. Therefore, traders would prefer to trade forex with a broker that offers low spreads.
What is a Spread?
A currency pair’s buying and selling price forms the basis of a spread. The difference between the ask price and the bid price is what we mean by a spread. Traders cannot just sell or buy a currency. The trades always happen with a pair of currencies. Forex brokers offer a quotation with a bid price and ask price. The bid price is the selling side and the ask price is the buying side of the currency pair. However, to make a profit, a trader needs to close it from the asking price and the difference between the entrance and exit price is what we mean by a spread. Spreads exist in every market.
Forex spreads vary, even on an hourly basis. Knowing all about spreads is important for Forex traders as they are the main cost when trading currency. Keeping a watch of the spreads can help you to make the most of your successes.
While trading, the principal focus is to make a profit, but this means taking into consideration the transaction costs too. Commissions, withdrawal and deposit fees, taxes, as well as broker spreads, all influence the net profit of the trading. Given that all traders want to minimize their costs, finding a low spreads Forex broker with as low a spread as possible is crucial.
What does Low Spreads mean?
Low spreads in Forex means that there is only a small difference in price between the ask price and the bid price. It is better to trade with low spreads as it indicates that, generally, volatility is low while liquidity is high. Low volatility means that there are fewer fluctuations in the exchange rate but its value changes steadily over time. A high liquidity means that the currency pair can be bought or sold easily without the exchange rate being affected too much.
Low spreads Forex brokers are popular because traders can open many deals in one day, with commissions reaching up to around 100 pips. Traders choose to trade with low spreads to cut the costs. With low spreads, there are fewer losses financially. This means that the trader’s basic principles of making a profit stand in good stead.
Spreads vary from broker to broker. If a trader wants to maximize their profits, he or she needs to look for a broker that suits their needs. Some brokers specialize in low spreads. We have come up with a list of low spreads Forex brokers to give you a helping hand with your Forex trading
Low Spreads Forex Brokers List
MAS, JFSA, DIFC