Many people are excited to invest in Forex. Sadly they the effect of spreads in the outcome of any trade. For instance, if a person has made a $10 profit by trading with the major currency pair, he will have to give out at least 5 to 10% of the investment to the broker depending on the conditions. Every service provider takes this fee from the customers after the trade is even opened, as there is no guarantee the investment will turn successful.
In this article, we are going to describe how the concept of spread can affect the result of trades. Don’t forget that it is an inevitable commission that needs to be paid regardless of the outcome. A good broker will only take a standard amount where is a premium service provider may charge a higher amount for using his trading platform.
Is there any concept of standard spread?
The investors should know that there is no central authority in the currency exchange industry. However, different communities are given the role of monitoring the transactions and the service providers’ operation. For example, the FCA might impose some strict rules to the UK brokers. But this might not be the standard in the other continents like Australia, Canada, and the United States, etc. The geographical position of the traders and brokers plays a great role while assessing the trading cost.
Do not fall for cheap deals as these are mostly scams used by swindlers. Keep in mind there are two types of spread used in Forex. One is the fixed spread and another is variable, where the charge will vary depending on the economic condition and market volatility. Many people like to go for the fixed one as it offers peace of mind and does not fluctuate with the market trends. Consider all the available factors before you chose your prime brokers. An attractive deal can help to prolong the career while not so good deal can end the carrier before it even begins.
Find a well-regulated broker
Some of you might not understand the importance of a well-regulated broker. Unless you open the fx trading account with a well reputed broker, you are not going to get any premium trading environment. The scammers might say, the spread will be less than 1 pips, but you will still lose money due to low graded trading platform. You need to find reliable broker transparent with their pricing and care about their client. You might have spent little bit more to trade with the high end broker, still it’s better to keep your money in the safe hands. Focus on the regulations, public feedbacks and trading environment. If you feel satisfied, open a demo account to analyze their offered service.
Which one is better?
Now, the first question that comes in mind is to identify which is more profitable for investors. First of all, there is no single strategy that can be particularly profitable to help in such circumstances. However, the experts suggest the naïve traders go with the fixed since it is not affected by price fluctuations. If you can find a good broker like Rakuten, consider the variable spread since they always offer tight spread trading environment.
In scalping or day trading where people need to take the decision very quickly, changing spread is usually preferred. Secondly, it is the skill of the traders that help them to recover the cost. A skilled investor can recover higher spread cost by using his expertise and knowledge. But a beginner may find it hard to deal with the big commission. Consider all of the facts that are associated with trading costs before choosing the broker. If required, use the demo account to find the best types of spread for your trading style.