Spread is the most crucial cost you will frequently encounter while trading in the Forex market. It is defined as the difference between the BID (buy) and ASK (sell) prices of a currency pair. For example, if the exchange rate of EUR/USD is displayed as 1.2100/1.2103, it means that the spread for this currency pair is 1.2103 – 1.2100 = 0.0003, or simply 3 pips.
Since currency prices highly fluctuate in just fractions of seconds, spreads are mostly offered in floating or flexible amounts, depending on the price of each currency pair. That is why the spread amounts can change numerous times in a matter of seconds due to the currency price movements.
There are Forex brokers that offer fixed spreads. This type of spread is predetermined, no matter how frequently and how much the currency price moves, the spread amounts would remain the same. A brokerage company that offers such services is referred to as a fixed spreads Forex broker.
It is essential to choose a Forex broker that can offer you the best deal to improve your trading experience. The following regulated fixed spreads Forex brokers are ready not only to serve you with appealing services but also to safeguard your capital. That way, you can totally concentrate on your trading activities.
You may be wondering, if floating spreads are more common in Forex trading, then why is it important to trade in fixed spreads?
The main point of trading in fixed spreads is that you pay a fixed difference (spread) regardless of the market conditions. That is to say, even when the currency prices oscillate in different directions, you still get to trade in the same amount of spreads offered to you by the broker.
For instance, the price of EUR/USD fluctuates because of a particular announcement. You may notice that floating spreads are rising and falling from 0.5 to 5 pips, which makes it hard to decide the right time to close a trading position without having to sustain unexpected losses.
Meanwhile, your fixed spreads Forex broker has set a 2 pip fixed spread amount. Therefore, no matter what happens to the price of EUR/USD or how wide the spreads fluctuate, your spreads will always be counted as 2 pips.
Bear in mind that most Forex brokers offer fixed spreads depending on the market conditions. That is why when the currency prices fluctuate substantially, most fixed spread Forex brokers would adjust the amount of their fixed spread accordingly and apply the new amount during these volatile situations. Later, when the market condition returns to normal, the broker will change the spreads back to their original amount as well.
Forex trading is extremely complicated and challenging, especially if you’re still a new trader trying to find your way around the FX Market. It is always better to make use of the available services and features to make your trading experience more rewarding.
Trading forex with the help of fixed spreads lessens the potential risks threatening your capital. It helps you to create a less-risky trading environment and focus more on predicting price movements. You can also improve your trading performance and enjoy the following advantages:
👍 1. Low-Risk Trading
When you trade using fixed spreads, you essentially minimize the most significant risk in Forex trading, i.e., price fluctuation. In this way, you won’t have to deal with unpredictable costs during different market conditions or gamble your money away, because all the transaction costs are transparent.
You may have to pay a premium when the market is quieter; however, you can always choose not to trade when the odds are against you. Fixed spreads trading gives you the ability to predict the outcome of your trades in a much less risky trading environment.
👍 2. Smaller Capital Requirements
Fixed spread trading also requires smaller amounts of capital because Forex brokers usually demand smaller deposit amounts for their fixed spread trading accounts.
Therefore, this type of spread will be perfect for low-capital new traders who want to try out new brokers without spending too much of their cash up front.
👍 3. Total Price Transparency
With floating spreads, there is always a slight possibility of price manipulation because you don’t know how far the spreads will narrow or widen, especially during highly volatile market conditions.
On the other hand, fixed spread trading gives you total price transparency because you always know how much you are going to pay your broker every time you enter a trade. It doesn’t matter how frequently the currency prices or spreads change, your spreads are already set and stay that way.
👍 4. More Accurate Trading Calculation
Now that you know exactly how much you have to pay for your trades considering the fixed nature of spreads, you can easily calculate your profits and losses. Moreover, it will be extremely beneficial, especially as a short-term trader or a scalper, because it enables you to predetermine the amount of profit you can gain.
👍 5. Shield Against Market Volatility
Most traders favor fast-moving markets because they present a higher potential for profits. However, a fast-moving market means fluctuating prices which could result in widening spreads to the highest range.
That is where fixed spreads come to your aide and shield you from such a dangerous threat. Fixed spread trading enables you to minimize your costs if you trade more frequently during highly volatile market conditions.
For example, say you’d like to enter and exit trades when the market reacts to important news and events. One day, an important incident happens and results in fluctuating the price of EUR/USD, and therefore, the rise and fall of spreads from 0.5 to 7 pips. Thus, you decide to place 100 standard lots worth of orders both in your floating and fixed spreads trading accounts.
Because the spreads are floating unpredictably, your trades in the floating spread account will give you the following results:
25 x 0.5 pips = 125 USD
25 x 3 pips = 750 USD
25 x 5 pips = 1250 USD
25 x 7 pips = 1750 USD
Meaning your total cost for 100 standard lots during such volatile market conditions will be 3,875 USD.
On the other hand, according to your fixed spreads trading account, the spread will be about 3 pips at this time. Therefore, if you place 100 standard lots x 3 pips = 3,000 USD, you are protected against an 875 USD loss.
👍 6. Better Learning Focus
Since you can eliminate the element of surprise by trading using fixed spreads, you can focus more on learning the market movements without any distraction from unpredictable variables. It is incredibly essential to improve your trading comprehension of the market movements if you are still a new trader because you need extensive knowledge to make better trading decisions in the future.
You may still be wondering which route you should take, Fixed or Floating Spreads!
Well, it all depends on your trading objectives and circumstances. If you spend more time trading during quieter market hours where you have all the time in the world, or if you are a professional trader with years of experience in the forex market, trading with floating spreads will be a more suitable option.
On the other hand, fixed spreads trading is mostly recommended to new traders, scalpers, and those who frequently trade during news events and peak trading sessions, where currency prices move in the widest spread ranges. Fixed spreads trading allows you to shield your capital from unexpected variables and helps you stay away from unnecessary worries. However, you need to prepare yourself for occasional re-quotes and slippages at peak trading hours due to the high level of supply and demand.
It should be noted that fixed spreads are getting less popular among Forex brokers nowadays, which is why you should even more carefully select your fixed spreads Forex brokers. It is incredibly essential to choose a prominent, regulated, and trustworthy Forex broker that can offer fixed spread features that suit your trading preferences and conditions.
