Finance

LOWEST SPREAD ASPECTS AND ITS EFFECTS ON TRADERS

Many subscribers have recently sent emails to me to ask about “Who are lowest spread brokers?” Actually listing down top 5 lowest spread brokers to me is as easy as a pie however I am not sure that those people can do anything with this list. So I decided to write this article to clarify every aspects and related information of low spread brokers for your deep understanding.

Spread means the difference between the Bid and the Ask price and the transaction fee that you have to pay for brokers or banks at your trading time. The higher the spread is, the more transaction cost. Because of this reason, traders desire to trade with low spread brokers. Nevertheless, not all traders want to trade with low spread brokers because of different reasons. If you are unclear about my point of view, let’s read to the end of the article to deeply understand it.

  1. What are the difference between Spread and Commission?

In current forex market, there are available 3 types of forex brokers accepted to do business legally. They are Market Maker, STP and ECN. The main income of two first brokers – Market Maker and STP – is spread while ECN’s income is come from commission. In conclusion, spread of Market Maker and STP is much higher than that of ECN brokers. That is the reason why these two brokers get quotations form liquidity providers, they would add the transaction fee (spread) to their quotations (a process called Mash Up). For ECN brokers, the will the right quotations that liquidity providers provided them but they will charge commission from customers because it is their main income.

In short, there is difference among three times of forex brokers as below:

  • Market Maker and STP have the main income from spreads.
  • While ECN has the main income from commission charge. Normally your ECN account would be charged both spreads and commission however those spreads are almost zero. The main fee that you have to pay is commission.

It’ll take time to clarify three types of brokers in one article and it will distract readers also so I just focus on the main topic here, so I will list down 5 lowest spread non-ECN brokers. It means that I will necessarily focus on 2 types of brokers: Market Maker and STP.

Go here to see what type of brokers is the best.

Below are top 5 lowest spread brokers:

  1. Exness.com
  2. Hotforex.com
  3. FBS.com
  4. XM.com
  5. FxPro.com

 

  1. What type of traders need low spread brokers?

Same as brokers, traders also have different types with their own characteristics, they are scalpers and long-term investors. Scalpers are ones who often open and close many positions of trading within a short time. Normally they just open positions less than 1 month. Long-term investor are those who have a long time of keeping position – longer than one month.

Scalpers often trade their orders just in a short time therefore their main transaction fee includes spreads and commission. In addition, because orders trading in short time get little pips (Abbreviation of “Price Interest Point” per order so scalper prefer to choose low spread commission brokers.

Long-term investors often keep their orders in a long time – several months or a year – and get much profit and pips per order so they don’t pay attention on spread and commission because they just pay maximum 2% of their profit for spread. Their most concern of transaction cost is swap of currencies, because they keep positions in a long time, currency rate may be changed. Sometimes investors must even pay up to 90% of their profit for swap. In this situation, investors prefer low swap brokers.

Of course we all agree that the first condition to choose a broker is their credit and reputation. We only trade with trusted and regulated brokers. Then, the next criteria is the transaction cost.

So what type of trader are you?

If you are long term investor, ignore spread, pay attention on swap only.

If you are scalpers, spread and commission are important.

  1. US and UK brokers’ spreads are much higher:

It is clear that UK and US are the 2 biggest forex markets in the world but its brokers tend to be less competitive in transaction cost aspect. After having researched hundreds of top forex brokers in the world, I realized that US and UK brokers usually offer higher spreads and commission than Australia and CySEC (Cyprus Securities and Exchange Commission) brokers. While CySEC give their customers the lowest spreads.

Below table are the spreads for EUR/USD of top forex brokers:

 

Broker Name EUR/USD spread Regulation
Exness 0.7 Pip (Classic account) CySEC, FCA
Hotforex 1.1 Pip (Premium account) Vincent
FBS 1.1 Pip (Standard account) Belize
XM 1.7 Pips (Zero account) FCA (UK)
FXTM 1.7 Pips (Standard account) Belize
Forex.com 1.8 Pips NFA (US)
FxPro 1.7 Pips FCA (UK)

 

After looking at the table, you can see that the CySEC brokers and Exness have the lowest spreads while UK and US ones have the highest spreads which double spread of Exness.

To explain why US and UK brokers have higher spreads:

Disadvantage of regulations is the persuasive reason in this case. Because US and UK regulations don’t allow brokers offer high leverage or bonuses and brokers also have to pay for regulation fee. Therefore they must charge more spread and commission.

If you are ASIAN traders, Exness is the best brokers for Scalpers.

If you are Africa traders, XM and FxPro are the best.

If you are US traders, Forex.com is the best

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

  1. How to choose the best low spread broker?

As I mentioned before, only scalpers should choose the low spread brokers. And long –term investor should pay attention to swap instead.

But the question here is “which brokers is the best for you among a dozen of low spread brokers?”

To response to this hard question, there are some conditions for your reference to choose the best forex brokers Brokersguru:

  • Regulated brokers: if that broker was regulated in your country, let’s choose it immediately. If there is no broker regulated in your country, try to choose the trusted and lowest spread brokers.
  • Brokers with local payment system: several low spread brokers don’t support local payment system so traders only deposit and withdraw money through Visa, Credit card, Neteller and Skrill, etc. By this way, you must pay 2-4% of your total deposit amount for international payment fee. This price is too much for you so you should not trade with them.
  • Low spread and commission.
  • Good local supporters.

To avoid making you confused, I conclude my writing and advice as below. Below is very helpful for your trading.

If you are ASIAN traders, Exness is the best brokers for Scalpers.

If you are Africa traders, XM and FxPro are the best.

If you are US traders, Forex.com is the best

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

Here are top 5 lowest spread brokers:

  1. Exness.com
  2. Hotforex.com
  3. FBS.com
  4. XM.com
  5. FxPro.com

Brokersguru proudly brings you this article. “The lowest spread brokers” is written by Mr. Bruce Kovner, an expert in forex trading for many years. Mr. Kovner chooses Brokersguru, which is in Thailand, due to its dedication and commitment to give forex traders trusted, safe, and professional knowledge about forex brokers.