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In Forex trading, spread is the difference between the ask price and the bid price. For example when trading GBP/USD and the quote is provided as 1.99846/1.99841, there would be a spread of 5. The Forex broker is at free will to choose either variable spread or fixed spread for their trading platform. It is pretty important to understand the kind of spread that your Forex broker is offering. The magnitude of this difference does not change when the broker is using fixed spread. Irrespective of the market condition and movement, the magnitude of the fixed spread is expected to remain constant. However when the Forex broker is using variable spread, the magnitude of this value keeps on changing depending on the market condition. There are various advantages of using fixed spread as stated below. Better scalping strategy Using fixed spread often makes the scalping trading strategy very profitable. As always, the scalping trading techniques becomes more profitable when done under tight spread. This is why fixed spread is beneficial for scalping. Scalping is a very profitable Forex trading strategy that many people are using. This trading strategy results is massive profits within a short time if markets goes in the traders’ direction. Rather than the market markets, scalpers often choose to use brokers using fixed spreads so as to increase their profitability. This way, the scalpers are guaranteed of non-swinging spread that often results in massive loss. Forex trading transparency Both the Forex trader and the broker enjoy greater level of transparency when using fixed spreads. Under fixed spread in particular when dealing with interbank networks prevents Forex brokers from engaging in unethical practices such as changing spreads in their favour. Most Forex traders are affected with this problem in the market. In most cases, some unethical Forex brokers would spike prices to favour them. They usually do this by simply increasing the spread in the expectation of big news in the market. The result is a conflict of interest between the trader and the broker. Easy automated trading Many Forex traders usually depend on automated trading techniques. They can engage in automated trading by the use of Forex robots or expert advisers. It is only when using fixed spreads that the process of automated trading becomes easy, simple, and profitable. However, this becomes problematic when the trader is using variable spreads or ECN. There are many benefits of using automated trading as the trade can be executed in the absence of the trader. When using the variable spreads, applying the automated trading techniques become very problematic because the Forex robots are unable to integrate the floating spreads. It subsequently results in trade losses. Easy news trading News trading becomes very simple and easy when using fixed spread as compared to variable spreads. The news trading does not work well for variable spreads because the spreads significantly widens prior to big news that would like shake the market. It has potential of leading to massive losses. This situation does not happen when using fixed spread. Conclusion Understanding the type of spread that your Forex broker is offering is very important. This greatly helps develop a good and profitable Forex trading strategy. The Forex broker is free to use fixed or variable spread; all have advantages and disadvantages. Apart from what is discussed above there are other outstanding benefits of using fixed spreads. The greater benefits of using fixed spread are the elimination of uncertain when trading. In addition, fixed spreads work well with most Forex trading strategies. Don't make your job more complicated by working with the false brokerage firm. Go through choosing a forex broker. Check out the details of an outstanding regulated Ireland broker on AvaFx review; I believe they could assist you with fixed-spread trading.
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forex broker, fixed spread, currency trading, forex,
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