Trading forex can be frustrating if every time you close your position, you make just enough money to cover the spread on your trade. This means that you aren't making any money as everything you make is used to cover trading costs. Consequently, traders should be interested in which brokers offer the smallest spreads and charge the lowest fees. In this guide, we present what we believe to be the best forex brokers for low spreads.
Our List of the Best Forex Brokers for Low Spreads
We’ve selected the best forex brokers for low spreads based mainly on the spreads but also with consideration of low fee structures, fast execution, no hidden fees, and regulation by reputable market regulators. The best forex brokers for low spreads in 2021 are as follows.
What Is a Forex Broker for Low Spreads?
The term "spread" refers to the difference between the ask price (the price at which you buy a currency) and the bid price (the price at which you sell a currency). For example, the GBP/USD currency pair might have a bid/ask price of 1.4147/1.4150. The spread is the absolute difference between the bid and ask, which in this case is 0.0003. Forex brokers quote spreads in terms of pips, which usually require you to divide by 100. Therefore, the spread of this currency pair is 0.03 pips.
How Does a Forex Broker for Low Spreads Work?
Some forex brokers charge fixed spreads on currency pairs. They can do this because they hold an inventory of the currency that they use to sell to buyers and buy from sellers. This spread can appear to be low on major currency pairs but high on exotic pairs. Other brokers may not have an inventory of currency, so they allow variable spreads on currency pairs. This means that the spread on a currency can be as low as 0.00 pips on one day and higher on another day.
Key Features To Look For in a Forex Broker for Low Spreads
When choosing a forex broker, the features you should look out for are low spreads, low fees, regulation, and the range of payment methods. Let’s look at these in turn.
Make sure your broker quotes low spreads for currency pairs, noting that some brokers offer low fixed spreads across all currency pairs whereas some apply variable spreads. Apart from their advertising — brokers often shout about their low spreads — you can use a broker’s demo account to assess the spreads before signing up for a live trading account.
Looking for low spreads means you are trying to maximize your profits by reducing the cost of trading. Therefore, it also makes sense to seek a broker that charges little to no fees for trading. A transparent broker will have a clear listing of the fees charged when using their platform.
Having a broker regulated by a reputable regulatory authority provides the trader with a layer of protection. A regulated broker tends to have a more transparent fee structure and tends to be objective when resolving trade disputes as the laws of the regulating authority govern them. Regulated brokers will say that they are, but you should also be able to search the relevant regulator’s website for the name of the financial firm.
A good broker will offer various methods for funding your and withdrawing your money. Typical payment methods include bank transfer, debit card, and sometimes even PayPal.
Pros & Cons Of Using a Forex Broker for Low Spreads
How To Choose the Best Low Spread Forex Broker for Me?
To choose the best broker for low spread trading, you must obviously ensure that your broker offers low spreads. This means you would have to compare the spreads at different brokers. To do this, you do not have to open an account at multiple brokers; you can compare the spreads at different brokers by requesting a demo account that is free to use. Please note that a demo account replicates the trading experience and any profits made do not reflect any real gains.
How to Safely Use a Broker to Make Money Online Trading?“ If you have been trading foreign currencies for a while, you will have heard of trading strategies like spinning and hunting, or hedging. One particular strategy that requires low spreads is scalping. Scalping is where you open a position with the intention of closing once the price moves a set amount of pips, usually 10-20 pips. This strategy would be most effective if the spreads on the trade are low. If your broker has a fixed spread on a currency pair of 40 pips, the scalping strategy would require the price of the currency pair to increase by 50-60 pips before you reach your target profit on the trade. However, if the spread was lower, you would require less movement in pips. ”- Mircea Vasiu
Trading forex can become costly if a trader is unaware of the costs they are paying to trade. A broker that charges zero commissions might not be cost-effective if it imposes wide spreads. Doing a complete analysis of a broker's fee structure and going after brokers that allow low-spread trading may significantly increase your profits.
Frequently Asked Questions
The term pip means percentage in point or price interest point. This represents a unit of change in the quoted price of a currency pair.
Some brokers can charge a fixed spread since they hold an inventory of currencies. That way, they can buy from a trader when they want to sell and sell to a trader when they want to buy.
Leverage represents the amount a broker lends a trader to make trades. So a 200:1 leverage means that for every $1 in your account, you can place a trade worth up to $200.
STP means straight-through processing. This type of broker often has fast execution on trades but may charge extra for this service.
An inactivity fee is a fee charged by your broker for not using your account for a period of days. Usually, a broker charges an inactivity fee every 90 days of no trading activity.
Spreads may be high because the currency pair you are trading is not as liquid. Spreads on currency pairs that are traded frequently tend to be lower.