Why are traders searching brokers that have the lowest spread in the forex market? When you are a forex trader, there are many different factors that you need to take into consideration before making your first move in the forex market. Besides the broker’s credibility, their spread is another factor that so many traders care about when it comes to the final decision of choosing brokers. So what’s spread? Why do so many traders want to work with low-spread brokers? And should you trade through a low-spread or not? All of these questions will be answered in my article below!
First, let’s take a look at the table that I made below. This table contains the top brokers all over the world as well as their spreads.
|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)|
As you can see from the table above, the CySEC brokers have the lowest spread (Exness’s spread is an example) and the US/UK’s brokers have the highest spread (1.7-1.8 pips). As we all know, the US/UK are the leaders in the forex market all over the world, their transaction cost is less competitive than so many other brokers in the world. But why their spreads are so high? This is the question that so many new traders have asked me. The answer to this question is because of their disadvantages from their regulations: They aren’t allowed to offer high leverage or bonuses. Moreover, they also have to spend a lot of money on their regulation fees. In order to earn more profit, they have to raise their spreads and commission fees. So should we work with a US/UK’s broker or not? What brokers are the most suitable for you? These will all be answered below!!
Before I go into details, I want to spend a few minutes to explain the definition of spread. So unlike Commission, Spread (often calculated with pip) is the difference between the seller’s price (Bid) and the buyer’s price (Ask). In the forex market nowadays, almost every broker doesn’t cost you any commission fees, and instead of taking the commission fees, they will take your spread. So the spread and the transaction fee move in tandem. In other words, the higher the spread rises, the higher the transaction fee is.
As I stated before, “all most every broker doesn’t cost you any commission fees”, yes, just almost. In the market, we have 3 kinds of brokers: Market Marker, STP and ECN. Market Marker and STP are the kind of brokers who don’t require any commision fees. As a result, when they get quotes from liquidity sales, they will “mash up” (a terminology in the forex market which is used to describe the action of adding spread to the quotes). Since their main incomes are from the spread, it’s reasonable why their spreads are higher than ECN’s spread. About ECN-the third kind of brokers, they have low spread but they will charge you commission fees as the commission fees are their main income. In conclusion, STP and Market Marker cost you spread and no commission fees. ECN brokers will take both you spread (nearly zero) and commission fees. So, since this is top 5 brokers that have the lowest spread, only non-ECN brokers are in the ranking below.
So, this is my top 5 lowest spread forex brokers:
So, how to choose the best low-spread broker? Before I answer this question, I would like to warn you that not every type of traders should choose a low-spread broker to work with. Specifically, there are 2 types of traders in the market: the long-term investor and the scalper. A long-term investor is a trader who keeps their position open for more than one month, in contrast, a scalper usually opens and closes their position in a short time. As a long-term investor, because of their characteristics, they often earn more pips per position than a scalper and only have to pay 2% per position. For this reason, they usually don’t care much about the commission and spread. But, they have to deal with another problem: the swap (the cost you have to pay to keep your position open) since sometimes the swap cost can be accounted for 90% of their profit. So for this kind of brokers, my recommendation for them is to find a low swap broker. On the other hand, a scalper usually searches for a low spread broker. Because they only earn some pips per position, they prefer a low spread and low commission fees broker. In brief, only scalpers should work with low spread brokers.
But, there are thousands of brokers that have low-spread out there in the market? How do we know which broker is the best for us? As an experienced broker who has worked in this field for more than 6 years, I would recommend you search for these standards below:
- Whether that broker is regulated or not?
- Do they have a local payment system or not? (Explanation: If the broker doesn’t have a local payment system, traders will have to deposit/withdraw money using international payment methods such as Visa cards, Credit cards, PayPal, Skrill, Neteller, etc. These methods usually cost you 2-4% of your total transaction amount and from my point of view, that cost is too money-consuming and unnecessary.)
- Is there local support? And if there is, then is it good or not?
- Is their spread higher than other brokers in your area?
First, if you’re living in a country that has regulated brokers, don’t hesitate and choose one of them (please read my recent post to know why). But if your country doesn’t have any regulated brokers, then my advice for you is to find a trusted broker that has the lowest spread in your region. From my point of view, if you’re in Asia, then go ahead and open an Exness account. If you’re African, then I suggest working with XM and FxPro. And if you’re a US citizen, then Forex.com is born for you. Last but not least, if you’re from the EU, then XM, Exness and FxPro are the best of the best.
If you’re from Asia, CLICK HERE FOR THE BEST FOREX BROKERS FOR ASIAN TRADERS
Thank you for reading my post!! Wish you the best and hope that you find my article useful!