There is an ongoing debate in trading communities regarding fixed spreads vs floating (variable) spreads. Depending on whom you talk to, some will say that fixed spreads are better when trading forex while others will claim the best way to trade is via floating spreads.
When Trading Forex, Are Fixed Spreads Better?
The answer really depends. Before diving in, let’s provide a quick definition for fixed spreads so those new to fx can understand the meaning behind the term “fixed spreads.” In essence, a fixed spread broker will lock in the spread value at a certain level so that the spread price never moves. For example, the spread on EUR/USD may be “fixed” at 1 pip regardless of the time or day.
As a general rule, forex brokers offering fixed spreads are operating as market makers. It’s easier for market making firms to offer fixed spreads since the prices are not coming from an external source, ie a liquidity provider.
Some traders prefer fixed spreads. For example, when trading around news events, spreads often widen with brokers offering floating / variable spreads. This spread widening often makes it very difficult to trade around news. Not only can spreads widen around news but during off hour market times such as EUR/GBP at 3:00 AM in Europe.
Advantages of Floating / Variable Spreads
Some traders do indeed prefer trading with floating spread brokers. One reason is that these firms are generally STP brokers, meaning there is no conflict of interest between trader and broker. Additionally, floating spread brokers often have very competitive spreads during active market conditions, which means that spreads can often be lower than those offered by a fixed spread broker. Finally, traders who are quite active in the market may be able to receive even lower spreads when they transact a certain volume. Such a luxury isn’t possible with a broker offering fixed spreads.
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If you are looking for a broker offering strictly variable spreads, our team of experts can help you select the best from the pack. Furthermore, if you prefer to trade with a broker offering fixed spreads, we can also help.
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