Forex Brokers with Low Spreads
Richard Montana | November 14, 2022
When you are trading forex online, you need to pay your broker a spread. This is a charge for buying and selling a currency pair. Therefore, forex brokers with low spreads can save you money if you are trading on a frequent basis. Whilst this may not matter too much if you plan on holding positions over the long term, high spreads can eat into profits when using forex day trading and scalping strategies. If you are a day trader, you might want to consider using a low spread forex broker.
What are forex spreads?
A forex spread is the difference between the bid price and the ask price of a currency pair, and is usually measured in pips. Forex spreads can start from as low as zero pips and go up to double digits depending on the currency pair being traded and current market conditions.
When there is a wider spread, it means there is a greater difference between the two prices, so there is usually low liquidity and high volatility. Before news events, or during big shock (Brexit, US Elections), spreads can widen greatly. You will therefore need to pay a high spread, not to mention any commission you might need to pay and slippage you can get on your trades.
A lower spread on the other hand indicates low volatility and high liquidity. A low forex spread means there is a small difference between the bid and the ask price so you will pay less if you take a trade. If you are looking to make a few pips per trade, then the lower the spreads you can trade with, the better chance you have of reaching your target.
Generally, where a spread is between 3-4 pips or more, it can be considered as quite high, although there are other points to consider. Emerging market currency pairs like minor, and exotic currency pairs will often have higher than average forex spreads. Major currency pairs such as the EUR/USD and GBP/USD tend to have some of the lowest spreads because they are amongst the most actively traded currencies with plenty of liquidity the majority of the time.
How to calculate forex spreads?
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 GBP/USD at 1.2089/1.2091, the spread is calculated as 1.2091 – 1.2089, which is 0.0002 (2 pips). If you took a position at this time, you would immediately be down -2 pips because of the spread.
If you are taking 10 positions a day with a broker that has a 2-pip spread on the EUR/USD, you would need to pay 10 x 2 = 20 pips in spreads. However, if your broker had a 1 pip spread, you would only pay 10 x 1 = 10 pips worth of spreads. This would reduce your costs by half and improve your chances of getting more favourable market prices.
Why are low spreads important?
Low spreads are important because they can save you money in terms of trading costs. They are also vital for forex strategies that only target a few pips to begin with. If you had a forex strategy that targeted 5 pips per trade and your broker had a 2-pip spread with 1 pip slippage and 2 pips commission fee, you would need to reach your 5-pip target just to break even.
You could always use a fixed spread broker if you want to make sure the spreads were at a certain value. However, I find that most brokers will have terms that state that they will not always be able to provide these fixed spreads during times of low liquidity or high volatility.
Low spread forex brokers for scalping
I think if you are planning to scalp the forex market using manual or automated trading strategies, then you will certainly want the lowest forex spreads possible. I have seen the exact same forex scalping strategy give completely different set of results simply because the brokers being used had different spreads. Even a 1 pip difference in spread can turn a winning strategy into a losing one when accounting for the spread plus commission fees, swaps and slippage.
Which forex brokers have the lowest spreads?
You will find that the majority of forex brokers will have low spreads, some starting from 0.0 pips and charging a commission fee. Then there are other who have spreads starting from 1-2 pips but will not charge you a commission fee. If a broker has high spreads and also charges a commission fee, they would probably be quite expensive when compared to the low spread brokers in the table below. From my experience, these are some of the best low spread forex brokers for scalping, day trading and forex robots.
ASIC, BaFin, CFTC, DFSA, FCA, FINMA, FMA, FSA, FSCA, JFSA, MAFF, MAS, METI, NFA
Advantages of low spread forex brokers
- Better for scalping and day trading
- Save on trading costs
- Get best bid and ask prices at all times
- Lots of regulated low spread brokers to choose from
Disadvantages of low spread forex brokers
- Spreads are not low at all times
- Cannot predict market liquidity
- May need to pay a commission fee
Conclusion: are low spread forex brokers good?
Yes, for sure! Low spreads can help to ensure that you get your buy and sell trades executed at the best possible prices which can save you on trading costs in the long run. If you are using an ECN forex broker with no-dealing desk execution, you can also get your positions sent through to the market with minimal delay (slippage).
Low spread forex brokers are especially important if you are using a forex scalping strategy and day trading. The main disadvantage with low spread brokers is that you usually need to pay a commission fee. However, they can still work out cheaper than market maker brokers who have a dealing desk that do not charge a commission but instead mark-up the spreads.
With so many low spread forex brokers out there to choose from, I don’t think there is any need to pay through the nose with high spreads unless the brokerage firm is providing a certain product or service that you cannot find elsewhere. You can also check out our guide on zero spread forex brokers for more information.
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