Question: Fixed Spreads and Floating Spreads in Forex: Which Should I Choose?
Question: Fixed Spreads and Floating Spreads in Forex: Which Should I Choose?
Answer
When you search for a broker, you will find many different account types and options when it comes to fees, available assets, funding methods, and more. One of the main considerations for traders are the spreads offered by different brokers, as the differences in these fees can be significant and will have a huge impact on the amount of profit you will actually bring in. Brokers generally make their profits through two different types of fees: commissions and spreads. The spread is the difference between the bid price and the ask price of an instrument. For example, on the EURUSD pair, the average spread is around 1.5 pips.
However, some brokers widen the spread to 2 pips or even more, putting clients at a disadvantage. Just like with auto insurance, traders need to be able to compare the spreads offered by different brokers to find the best possible deal. Otherwise, they will lose a lot of profit due to inflated fees when they could have chosen a broker who offers more competitive prices.
As mentioned above, you want to look for spreads around 1.5 pips on the EURUSD pair. Don't expect to see this on all available instruments, as spreads on exotic currencies and some minor currency pairs can climb much higher. If you see a good spread offer, you are not done yet, because you need to know if the spread is floating or fixed.
Floating spreads are more common in the forex market, which means that the difference between the bid price and the ask price constantly changes. If a broker advertises floating spreads from 1 pip on a currency pair, you may still see a spread of 1-2 pips or more for that same pair. Brokers are also likely to charge commissions if they offer a floating spread. You should check if the broker lists each instrument they offer and the starting spreads for each pair on their website in order to see the different starting spreads. If a broker advertises starting spreads starting at 1 pip, but does not go into detail, you should expect to see this on some major currency pairs with higher spreads on
Unlike floating spreads, which are constantly changing, fixed spreads are fixed at their exact value and give traders a more solid basis for knowing exactly what they are going to pay. The disadvantage of this type of spread is that it is usually higher than the lowest point of a floating spread. For example, if the broker offers floating spreads starting at 1 pip on EURUSD, you may see a fixed spread of 2 or more pips for the same pair. Low fixed spreads are advantageous, while higher fixed spreads mean you will end up paying more brokerage fees.
When deciding which type of spread is best, you will need to look at each broker's specific offering. You may also need to look around if you prefer a certain type of spread, as many brokers only offer one type or the other, while some offer different types of accounts with different types of spreads. In our opinion, the best type of spread is fixed, but it should be narrow. If the spread is set at a high value, it is generally better to opt for a floating spread.