The spreads offered by each broker may be different for each parity. It is then necessary for a trader to be well informed about the various brokerage fees he has to pay before starting to work with any broker. This gives an overview of the profitability of his investment. There are several questions that it is important to answer before studying the interest of finding the broker with the best spread. What is a spread? Why are spreads different from one broker to another? Etc.
What’s the spread?
Spread is one of the most widely used terms in the world of online trading and investing. It is one of the basics that all traders need to know before they start trading.
In the stock market and Forex, the spread is the difference between the purchase price and the sale price. It is therefore the difference between the bid (or bid) price and the ask (or ask) price. This sum is no longer variable when the position is open. It is paid in advance. It is measured in pips or points.
For the online broker, the spread is one of his main sources of profit. It is usually accompanied by commissions and swap fees. The spread may be fixed or variable depending on the broker.
The spread has an impact on stock market performance. Depending on the frequency of trading, it can have a distinct importance:
for long-term trading, trading costs have little impact on the investor’s final result. For day trading, the investor who opens one or more positions on the stock exchange and closes them on the same day must be careful. Trading fees can have a fairly considerable impact on the return obtained; for scalping, players in the financial markets must really obtain competitive fees. They have to look at the tables below to determine the best offers from brokers.
Why are spreads different from one broker to another?
Each broker is free to choose between a fixed and a variable spread. The broker with the best spread is the one who has services that meet the needs. In most cases, brokers opt for the variable spread.
It should be noted that the differences between the spreads offered by brokers can be very significant. It is therefore important for a trader to be informed about this.
Two different brokers may offer two different spreads for the same product. It is possible, for example, that on the same currency pair, the pips may have different values. The principle is similar to buying a simple commodity in the shops. It can have dissimilar prices. It is a buyer’s duty to make comparisons of broker spreads.
Thus, it is essential to pay attention to these small spreads that seem insignificant but can have a considerable impact on capital, whether in the short or long term.
In reality, in the currency market, each pip is represented by the fourth digit after the decimal point in an exchange rate. For example, if the euro-dollar rate is 1.1234/1.1235, the difference between supply and demand is 0.0001. The spread is therefore one pip.
The amount of the spread which is variable depends on the volumes traded on an instrument and the volatility.
Most of the time, the broker collects the spread as soon as the position is opened. Thus, the trader has a negative position on the trading platform like MetaTrader 4. This is the easiest way to see what the intermediary’s brokerage fees are.
Before starting a collaboration, the broker has the duty to inform the trader about the value of the spread he is applying. This should normally be visible on the contract specifications page.
Which broker has the best spreads?
The spreads displayed by some brokers may appear more advantageous at first glance. However, you should not forget that there are still other charges that need to be added to the spreads. That said, with the value of commissions and ancillary fees, the lowest transaction fees can conceal surprises.
Then you need to do a little comparative analysis on broker spreads and determine which is your best broker before trading.
Les spreads affichés
These are the spreads on which brokers communicate. Two classes of brokers must be differentiated:
– Those who don’t have a volume commission. These brokers generally communicate on their « target spread », while others choose to communicate their lowest spread displayed on a real account. At first glance, these brokers have larger spreads than others because they pay themselves exclusively on the spread. They spread the spread perceived by their banks. These are the cash providers – the ones who have volume commissions. These brokers usually communicate on their average spread, also called « typical spread ». They are divided in two: there are those who display the spread earned from their liquidity providers and then simply pay themselves on volume commissions. There are also those who choose hybrid remuneration. This is a slight spread spread with commissions.
These are the spreads that take into account the average effective spreads received on a real account for which volume or order commissions are already included. In most cases, this information is provided on the brokers’ websites. Moreover, brokers must display this information in accordance with the recommendations of the regulatory authorities to ensure greater transparency for customers.
To conclude, in order to find the broker with the best spread, several data must be taken into account and comparisons made. It is also necessary to go through a simulation by creating a demo account on MetaTrader 4, for example.