Forex Brokers with Fixed Spread Accounts
There are many benefits to trading forex with fixed spreads, specifically if you are using a forex scalping strategy that is very spread dependant. The spread can make a difference between a profitable forex strategy and a losing one. If you have a trading strategy that requires tight spreads at all time, then you may want to consider using a fixed spread forex broker.
What are forex spreads?
The spread is a fee that you pay your broker for buying and selling currency pairs. It is the difference between the bid and ask price at the time you execute your position. Spreads can start from as low as 0.0 pips on ECN forex brokers as they will also charge a commission fee on top to cover costs.
Otherwise, you can trade with zero commission fees using a market maker broker and pay a spread mark-up instead. Some market maker forex brokers provide fixed spread accounts as they can set the bid/ask prices themselves. This has both pros and cons which we will discuss later.
How to calculate forex spreads?
The spread is usually measured in pips, which is the smallest unit of the price movement of a currency pair. For most currency pairs, one pip is equal to 0.0001. To calculate the spread in forex, you have to work out the difference between the buy and the sell price in pips. You do this by subtracting the bid price from the ask price. For example, if you’re trading EUR/USD at 1.2089/1.2091, the spread is calculated as 1.2091 – 1.2089, which is 0.0002 (2 pips).
What are fixed spreads?
Most forex brokers provide floating spreads, which means that they get the bid/ask price from a pool of liuqidity providers. Therefore, the spreads are variable depending on the available liquidity when you want to buy or sell a currency pair. When there is plenty of liquidity, spreads can be very low, especially on major currency pairs such as the EUR/USD.
However, if there is high volatility or not much liquidity, spreads can increase significantly. This can cause unexpected losses, especially on spread sensitive forex strategies. That is where a fixed spread account can come in handy. If you want to know what spread you will pay before placing a trade, you might want fixed forex spreads.
What is a fixed spread forex broker?
A fixed spread forex broker will offer trading accounts where you can get access to fixed spreads rather than floating spreads. On this type of forex account, you will pay a fixed spread at all times, regardless of the liquidity.
This means that you can plan your strategy accordingly as you know the spread beforehand. Some brokers even offer both variable and fixed spread accounts to cater for the needs of different traders.
Fixed spread forex brokers pros & cons
Pros
- You know the spread you will pay in advance
- Can plan your trading strategy accordingly
- Can be good for scalping strategies
- Can work out cheaper depending on the liquidity
- Might not need to pay a commission fee due to spread mark-up
Cons
- Broker terms usually state that they do not have to offer fixed spreads during certain market conditions
- Fixed spreads are generally higher than floating spreads
- Not many forex brokers provide fixed spread accounts due to the risks they have where they may end up losing out by paying a higher spread themselves
What are the best fixed spread forex brokers?
There isn’t really a great selection when it comes to fixed spread forex brokers and there are other aspects that you need to consider other than the spreads. Things to look out for include the currency pairs available, funding methods, minimum deposit, leverage, any commission fees, regulation, customer support and more. You can see a selection of our best fixed spread forex brokers below based on the hundreds of brokers that we have reviewed over the years.
Conclusion: should I use a forex broker with fixed spreads?
It depends on your forex strategy. If you are scalping or day trading, then you might benefit from knowing what spreads you will pay in advance. However, if you plan on holding positions for the long-term, then the spreads that you pay may not matter so much to you.
It is also worth considering that you can get cheaper floating spreads if you are trading around hours when there is plenty of liquidity in the forex market. This is usually when the major markets are open, including the New York and London trading sessions.
If you want to trade after the NY close and prior to the Asian session, spreads can be higher due to the lack of trading volume. This might be an instance where fixed spreads come in handy but it is rare for a broker to have fixed spread then.
It can be a risky business model for a broker as they do not always know what bid/ask price they will be getting from their liquidity providers, if they use any. If they provide inhouse liquidity, they can still lose out if you are trading successfully which might lead to a conflict of interest.
I have also seen forex brokers offer fixed spreads but state in their terms and conditions that they have the right to increase spreads during certain market conditions. This defeats the purpose of having fixed spread accounts in the first place.
Hopefully this has given you some food for thought when looking for a fixed spread broker. They do exist, but it is not realistic for most brokers to provide fixed spreads 24/7 as they could end up losing out themselves. This might even cause them to ask about your trading strategy and put restrictions on your account if you are doing really well.
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