Other Brokers Offer The Same Spreads To Everyone

Category: Finance, Currency Trading.

Nothing affects your profitability more than the spreads offered by your Broker. Nearly every broker is claiming to have the tightest Forex charts and spreads in the industry.

But spreads in the Forex charts spot market can be confusing to understand, and the marketing from many brokerages can be deceiving. However, what does this mean, and how can you tell if a brokerage is delivering what they promise. A spread is the difference between the ask price( the price you buy at) and the bid price( the price you sell at) that is quoted in the pips. In order to understand the spread, you need to know what it is. The pips are the smallest unit of difference between the two currencies in the quote. The spread is how brokers make their money. If the quote between EUR/ USD at a given moment is 2222/ 4, then the spread equals 2 pips, the difference between the 2 and the If the quote is 22225/ 4, then the spread is going to equal 5 pips.

Wider Forex charts and spreads will result in a higher asking price and a lower bid price. Brokers generally don` t earn the full spread, especially when they hedge client positions. The end result of this is that you will pay more when you buy and get less when you sell, making it more difficult to realize a profit. The spread helps to compensate the brokerage for the risk it assumes from the time it starts a client trade to when the broker` s net exposure is hedged( which could possibly be at a different price) . As a trader, your sole interest is buying low and selling high( like futures and commodities trading) . Forex charts and spreads affect the return on your trading strategy in a big way.

Wider Forex charts and spreads means buying higher and having to sell lower. The tighter the spread is the better things are going to be for you. A half- pip lower spread doesn` t necessarily sound like much, but it can easily mean the difference between a profitable trading strategy and one that isn` t. Nevertheless, tight Forex charts and spreads are only meaningful when they are paired up with good execution. When this occurs repeatedly, it means that your broker is showing tight Forex charts and spreads but is effectively delivering wider Forex charts and spreads. A good example of this is when your screen shows a tight spread, but your trade is filled a few pips in the wrong direction, or is mysteriously rejected.

Rejected trades, slipping, delayed execution, and stop- hunting are strategies that some brokers use to get rid of the promise of tight Forex charts and spreads. Oddly enough, when it comes to economies of scale, Forex charts doesn` t even act like most other markets. Forex charts and spreads should always be considered in conjunction with depth of book. On the inter- bank market, for example. So when you see a 1- pip spread on an ECN platform, you have to wonder if that spread is valid for a$ 2M, $5M or$ 10M trade, which it probably isn` t. The larger the ticket size, the larger the spread is.

In many cases, the tight spread that is offered applies only to a capped trade sizes that don` t work for most of the common trading strategies. This makes comparing brokers difficult. Spread policies change a great deal from broker to broker, and the policies are often difficult to understand. Some brokers actually offer fixed Forex charts and spreads that are guaranteed to remain the same regardless of market liquidity. Other brokers offer traders variable Forex charts and spreads depending on market liquidity. But since fixed Forex charts and spreads are traditionally higher than average variable spreads, you can end up paying an insurance premium during most of the trading day so that you can get protection from short- term volatility. Forex charts and spreads are tighter when there is good market liquidity but they will widen as liquidity dries up.

If you trade primarily on news announcements that you hear, you may be better off with fixed Forex charts and spreads. When it comes to choosing between fixed and variable rates, the choice depends on your individual trading pattern. But only if the quality of execution is good. For example, those clients that have larger accounts or those who make larger trades may receive tighter Forex charts and spreads, while the clients that are referred by an introducing broker might receive wider spreads in order to cover the costs of the referral. Some brokers have base the Forex charts and spreads they offer their clients on the type of account the client has. Other brokers offer the same spreads to everyone.

Because of this, many traders are caught up in the promises they hear, often take a broker` s words at face value. It is often difficult to get information on a company` s Forex charts and spread policy or its order book depth. This can be dangerous. The only real way to find out what a company` s policy really is to try out various brokers or talk to those who have.

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