LOWEST SPREAD - IS IT FOR ALL TRADERS?

BRKV - Despite receiving multiple requests for the list of low spread brokers, I still hesitate to answer since I am concerned that people might misunderstand about spread and use this list for wrong purposes. That is the reason why this article will help traders to understand about the concept of low spread in forex trading.

Basically, spread is the difference between the Bid and the Ask prices. Iit is the transaction fee you have to pay for brokers or banks. Therefore, the higher the spread, the higher the transaction cost. This explains why traders are fond of low spread brokers.

1. What are the differences between Spread and Commission?

There are 3 types of forex brokers: Market Maker, STP, and ECN. For the first two,  their spread rates are much higher than that of ECN brokers since their main income is spread. After getting quotes from liquidity providers, they will add up the spread to those quotes (a process called Mash Up). Meanwhile ECN brokers will provide the exact quotes as the liquidity providers offered and charge commission as it is their only main income.

So what are the differences?

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  Market Maker and STP brokers earn money from spreads.

  
  


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  ECN brokers earns money from commission.

  
  


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  For ECN accounts, you will be charged both commission and spread fee, but keep in mind that those spreads are equal to none. This is why the main fee you have to pay is still commission.

  
  

First of all, here is the top 5 best forex brokers:

1. 
   

   Exness.com

   
   


2. 
   

   Hotforex.com

   
   


3. 
   

   FBS.com

   
   


4. 
   

   XM.com

   
   


5. 
   

   FxPro.com

   
   

You can review Exness here.

2. What type of traders need low spread brokers?

In the forex market, there are two main types of traders: scalpers and long term investors. Basically, scalpers are traders who keep their positions open less than one month. On the contrary, long term investors are traders who keep their positions open for more than one month.

For scalpers, spread and commission is their main transaction cost since most of their positions are opened in a short time. Moreover, they gain only a few pips for each order, so they would prefer low spread and low commission brokers.

For long term investors, they can earn up to hundreds of pips per position since their positions are kept opened longer. Therefore, their main transaction cost is swap and they have to pay a maximum of 2% of their profit for spread charge. Yet in some cases they have to pay up to 90% of their profit for swap. In other words, long term investors prefer low swap brokers.

So what type of trader are you?

If you are long term investor, you do not have to worry about spread.

If you are scalpers, spread and commission are important.

3. Why US and UK brokers’ spreads are higher?

US and UK are the two of the biggest forex markets in the world despite having less competitive advantages in term of transaction cost. From my experience, I realized that US and UK brokers usually offer higher spreads and commission than Australia and CySEC brokers.

Example:

According to the table, CySEC broker and Exness has the lowest spread while UK and US brokers have the highest spreads. In addition, UK and UK spreads are twice as much as that of Exness.

Why do US and UK brokers have higher spreads?

In fact, it is illegal for US and UK brokers to offer high leverage or bonuses due to their regulations. Therefore, brokers in US/UK have to charge more spread and commission fee instead.

In short, here is my advice for new traders:

If you are an ASIAN trader, Exness is the best broker for you.

If you are an Africa trader, XM and FxPro are the best choice.

If you are an US trader, Forex.com will be suitable for you

If you are an European trader, XM, FxPro and Exness are the best.

Read more : TOP 5 LARGEST FOREX BROKERS TO TRADE WITH

4. How to choose the best low spread broker?

Here are the basic categories to choose the best low spread broker for you:

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  Regulated brokers. As long as a broker is regulated in your country, choose it. In case your country has no regulated broker, you should choose trusted brokers with the lowest spread rate.

  
  

Learn more about regulations here.

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  Brokers offering local payment system. Without local payment systems, traders can only deposit or withdraw using Visa, Credit card, Neteller, and Skrill, etc. This is why you should avoid trading with them since you also have to pay 2 - 4% of your total deposit amount as the fee for those international payment methods. This price is just too much comparing to the usual income of a traders.

  
  

Check out the Exness Payment system here.

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  Low spread and commission.

  
  


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  Good local supporters.

  
  

To sum up:

If you are an ASIAN trader, Exness would be the best broker for scalpers.

If you are an Africa trader, XM and FxPro are the best choice.

If you are an US trader, Forex.com will be suitable for you

If you are an European trader, XM, FxPro and Exness are the best.

Hey there, this is Fanara Filippo. I’m the author of this article and I’m currently collaborating with Brokerreview.net, or BRKV in short. My articles are mainly for forex traders from Thailand, Indonesia, India, Bangladesh, and South Africa.