Forex Spread - Floating Or Fixed

When it comes to forex spreads, you need to decide which is better for you?

When it comes to forex spreads, you need to decide which is better for you?  Do you want floating spread (ECN) or do you want a fixed forex spread?

If this is completely foreign to you, let’s start off with the basics. When you look at a currency pair quote, you’ll see two prices, the bid and the ask.  The bid is the price which the banks are willing to buy the currency pair at, and the ask represents the price they are willing to sell at.

The difference between the two prices is the spread.

In a floating spread, otherwise known as ECN, which is an electronic system that matches buyers and sellers. So, the forex broker would be giving you a floating rate based on current market conditions.

So, generally speaking as the markets become more volatile (for example during big news events) the spreads will most likely become bigger.  Generally speaking, when the market is more docile, the spreads will be lower.

When you use a forex broker that uses fixed spreads, the spreads stay the same irregardless of the market conditions.

They each have their own advantages and disadvantages.

With floating spreads, you generally have a greater opportunity to trade with tighter spreads, especially when the market isn’t volatile, so it’s perfect for the swing or position trader. 

But it’s also perfect for the scalping trader who wants to jump in and out the market getting 5 or 6 pips at a time.  You don’t have to worry about the spreads eating into your profits.  You just have to pay close attention to how tight the spreads are before you buy or sell.

If you trade during BIG news like Non Farm Payroll, your spread is going to destroy any chance of a profit.

When you are trading with a floating broker, you do have to worry about the ethics involved. There are many unethical brokers out there who are going to take advantage of the situation, and fill your entry or exit at a much worse spot, and they can always claim that it was because of the floating spread.

I guess it really depends on your trading strategy and your own personal risk aversion to know which kind of broker is right for you. I encourage you to demo trade with brokers that offer both a fixed spread and floating spread to see which one you like best.

One of the most famous brokers that offer floating spreads is Oanda, while a famous broker that offers fixes spreads would be Alapari.

Test it out for yourself.  There are certainly no shortage of brokers out there.  Just make sure you go with somebody who has a strong reputation.  The last thing you want is to have your hard earned money with some kind of scam broker. Due dilligence is important.

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