Forex attracts $5 trillion worth of trades every day. This lucrative amount lures millions of traders worldwide, but many are increasingly becoming doubtful due to the cost of entry, hidden commissions, and wide spreads.
In this article, we will brush into the topics everyone wants to know about Forex trading. This includes a discussion on Forex spreads, a look at zero spread Forex brokers, and recommendations on platforms offering tight spreads in 2023.
Getting into Forex spreads
Forex trading is the act of buying and selling currencies with the purpose of gaining a profit. Currencies are always quoted in pairs, with the first currency known as the ‘base currency’ and the latter as the ‘quote currency.’
As in the EUR/USD pair, euro is the base currency while the US Dollar is the quote currency. Looking at the EUR/USD plain and simple, the pair is currently quoted at 1.0877 which means it takes $1.0877 US Dollars to buy one euro.
In reality, it is not as straightforward as it sounds, as the Forex market is run by bid-ask spreads.
Bid-ask spread
Forex pairs are always quoted in bid-ask prices. The ‘bid’ represents the price at which you can sell the base currency or in other words, the bid price is the price at which the broker is willing to buy the base currency in exchange for giving you the quote currency.
Moreover, the asking price is the price at which you can buy the base currency or the price the broker is willing to sell you the base currency.
In a concrete example for the EUR/USD pair, the bid-ask price is published at $1.0877/1.0881. The first number is the bid price while the latter is the ask price.
This means an investor is quoted to pay for an asking price of $1.0881 for a euro (the base currency), while getting a bid price of $1.0877 if ever one decides to sell the euro back.
The $1.0877/1.0881 bid-ask spread represents a 4-pip spread calculated from the difference between the bid and ask price. Such a threshold is within the normal range of Forex trading, and a spread is how a broker makes money out of trades.
Despite it looking low, this number can easily compound especially when trading in high volume, and this is the reason why Forex traders are always on the lookout for brokers offering zero spreads or at least tight spreads.
Does a real zero spread Forex broker really exist?
A zero spread Forex broker offers trading accounts that have no difference between the bid and ask price.
As mentioned, spreads are at which a broker makes money out of traders, so why would it give a zero-spread offer? For obvious reasons, traders see spreads as a major disadvantage to their trading activities as buying a currency at a higher price than they could sell it directly means a loss.
Many brokers zero spread offers as a marketing strategy. But in reality, there is no ‘real’ zero spread in practice. Platforms will always find ways to make a profit out of trading activities, and this kind of offer often means hidden charges and high commission rates.
On the other hand, zero spread Forex brokers can be beneficial for beginner traders who have zero idea how pips work. In this case, charges from commissions are more straightforward than the complexity of varying spreads.
But those who are already proficient in the nooks of the Forex market are often looking for low spread offers as they consider them as more transparent in general.
Platforms offering 1 pip spread are considered low spread brokers, and some of the mainstream service providers such as RoboForex, IC Markets, Exness, and FP Markets currently observe such structures.
Brokers with the tightest spreads in 2023
As mentioned, many traders would rather go for brokers with tight spreads instead of those with flat offers for transparency reasons.
In 2023, brokers that topped the list of Forex platforms with the lowest spreads during the year include Exness, IC Markets, Tickmill, and Multibank.
Looking at each one in a more detailed look, the average spread of the EUR/USD pair across all four brokers is capped at 0.1 pip this year. Meanwhile, the GBP/USD pair ranged between 0.3 to 0.5 which is still considered more attractive than RoboForex’s 0.9 pip spread.
In addition, the USD/JPY pair ranged tightly between 0.1 to 0.3, while AUD/USD remained attractive between 0.2 to 0.4.
Aside from tight spreads, another major advantage of these four brokers is that their mainstream popularity vouches for their trustworthiness.
The platforms are heavily regulated, with some securing the green light from the tier-1 regulators in the Forex market including the United Kingdom’s Financial Conduct Authority (FCA), the Cyprus Securities and Exchange Commission (CySEC), and Australian Securities and Investment Commission (ASIC).
Author Bio: Jeremy Flint
