When Forex trading, you are not really buying and then selling currencies. You are effectively hedging your bets on whether the values of a currency will fall or rise. When opting for a currency pair, you are expecting one currency’s price to rise compared with the falling price of the second currency. Forex brokers that offer the tightest of spreads usually offer spreads that are variable. A variable spread means that the value of the currency pairs fluctuates during the trade, meaning that the risk of loss is greater than if the spread was fixed. Generally, spreads tend to be at their tightest during active sessions of trading, where the currency liquidity is at its peak.

Tight Spread

A spread simply means the difference between the bid price and the ask price of a currency pair that is being traded. A tight spread means that there is not much difference between the two values. This is more beneficial for the trader as it results in fewer losses and often fewer commissions and fewer fees.

The most acknowledged Forex brokers that provide the tightest spreads are: AvaTrade, IC Markets, and Plus500; they offer tight spreads that minimize as much financial losses as possible for the trader.

Factors Affecting Spread Size

There are many factors that affect how big the bid-ask spread is. The key factor is the liquidity of the currency. This means, therefore, that the tighter the pip spread, the more traders are trading in it. The most popular pairs of currencies offer the tightest spreads whereas rarer currency pairs tend to offer larger spreads. Today, there is a lot of competition among Forex brokers and, as such, brokers tend to offer the lowest possible spread that they can.

Tightest Spread Forex Brokers List

Broker
Description
Trade Now
Octafx
OctaFX
Regulation: CySec
Min. Deposit: $/€/£ 5
Leverage: 1:500
Spreads: Low as 0.4 pips

Review


FP Markets
FP Markets

Regulation: ASIC, CySEC
Min. Deposit: $/€/£ 100
Leverage: 1:500
Spreads: Ultra Tight from 0.0 pips

Review


NSBroker
NSBroker
Regulation: MSFA, BaFin, FCA,
Min. Deposit: $250
Leverage: 1:100
Spreads: Low as 1.2 pips

Review
XM
XM
Regulation: CySEC,FCA,ASIC
Min. Deposit: $/€/£ 5
Leverage: 1:500
Spreads: Low as 0.1 pips

Review
Avatrade
Avatrade
Regulation: ASIC,JFSA,FSCA
Min. Deposit: $/€/£ 250
Leverage: 1:400
Spreads: Floating from 1 pip

Review


IC Markets
IC Markets
Regulation: ASIC
Min. Deposit: $/€/£ 200
Leverage: 1:500
Spreads: Low as 0.0 pips

Review


Etoro
Etoro
Regulation: CySEC,FCA,ASIC
Min. Deposit: $/€/£ 200
Leverage: 1:30
Spreads: Variable

Review

XTB
XTB
Regulation: FCA
Min. Deposit: $/€/£ 250
Leverage: 1:30
Spreads: Low as 0.1 pips

Review


IQOption
IQOption


Regulation: CySec
Min. Deposit: $/€/£ 10
Leverage: 1:1000
Spreads: Floating from 1 pip

Review


OlympTrade
OlympTrade
Regulation: IFC
Min. Deposit: $/€/£ 10
Leverage: 1:500
Spreads: Low as 0.0 pips

Review
Globex360
GlobeX360
Regulation: FSCA
Min. Deposit: No min Deposit
Leverage: 1:500
Spreads: Low as 1.6 pips

Review

 

How to Minimize Spreads

There are two ways of reducing the costs of spreads. Firstly, a trader could only trade during the best trading hours, when the currency liquidity is high, as mentioned above. With the number of sellers and buyers of a currency pair goes up, the demand and competition drive the market to offer narrower spreads to attract buyers.

Secondly, traders who are looking to minimize their spreads should avoid currency pairs that are traded rarely. The USD/GBP is one of the most popular and, as such, there are many brokers that compete for business by offering the tightest spreads. If a currency is traded thinly, there are likely to be fewer buyers available to trade with. This means that the spread will be wider to reflect the lack of competition.

Advantages of Tight Spread Forex Brokers

There are many gains and losses when it comes to trading with the tightest spread Forex brokers, but the advantages are more tempting than the drawbacks that follow. The first advantage is there is a significant lowering of costs when it comes to trading with tight spreads. The reducing of costs for a trader can also improve the profit that takes place from the trading session with tight spreads.

The second advantage with tight spread Forex brokers is that there is a relatively lower chance of financial risk, since the bid price is not a big difference to the ask price. This means that a trader does not have the potential to face significant financial risk and losses.

The third, along with various others, advantage of tight spread Forex brokers is that there is a form of stability when it comes to volatility in the financial markets. With tight spreads, there is a significant decline when it comes to the financial risk that mostly occurs during the volatility of the financial markets. It is a principle that in FX trading, there is massive amount of financial risk due to the unpredictability of the financial markets. However, tight spreads minimize the financial risk as much as possible for the trader.

Disadvantages of Tight Spread Forex Brokers

There are disadvantages that follow the tightest spread Forex brokers and they are elements that traders should consider. With tight spreads, it is possible for brokers to change the margins and the financial markets that are available, without notice. This means that the reduced cost is an advantage, but the unpredictability of the broker with tight spreads is a disadvantage. It is also possible for financial services providers would change the spreads, also on short notice. This particular drawback must be considered carefully by the trader, as they make their decision on which broker to invest with.

Another disadvantage is more relevant with how long a trader has been trading with a tight spread Forex broker. A trader, who deals with tight spreads for a long period of time, tends to use more resources and funds than traders who deal with other financial leverage sources.

Conclusion

To sum up, the tightest available spreads are those of the most popular currency trading pairs as they are the ones with the most market liquidity. If you’re looking for a tight spread, it would be wise to stick the big currencies to secure your spread or select a fixed spread account. Another way to secure tight spreads is to open an account with a zero pip spread Forex broker.

There are both advantages and disadvantages when it comes to the tightest spread Forex brokers, so we suggest that the trader researches the terms and conditions of trading before making any decision on who to trade with.