In Forex trading, spread is the difference between the ask price and the bid price. For example if a GBP/USD is quoted at 1.99846/1.99841, the spread would be 5. The Forex brokers can choose to use either a fixed or variable spread for their trading platform. It is pretty important to understand the kind of spread that your Forex broker is offering. When using fixed spread, there would be no change in the magnitude of this value. The magnitude of the spread always remains constant irrespective of the market condition. However when the Forex broker is using variable spread, the magnitude of this value keeps on changing depending on the market condition. There are various advantages of using fixed spread as stated below
Profitable scalping
The opportunity to work on fixed spread often makes Forex scalping very profitable. As always, scalping would only be more profitable under tight spread. This is the primary benefits of this kind of spread. Scalping is a very profitable Forex trading strategy that many people are using. This trading strategy results is massive profits within a short time if markets goes in the traders' direction. To increase profitability scalpers often choose to work with Forex brokers offering constant spreads rather than using the market maker brokers. In this case, there is no swinging nature of the spread that could change the profit levels.
High level of transparency
There is high level of transparency enjoyed by both the trader and the Forex brokers when using non-variable spreads. The use of constant spread especially when dealing with interbank network does not give the Forex broker an opportunity to engage in unethical practices such as changing spread to favour their trading sides. This is a problem that affects very many traders. In most cases, some unethical Forex brokers would spike prices to favour them. They can do this by increasing the spread when certain huge news is anticipated. This results in conflict of interest between the broker and the trader.
Easy automated trading
Many traders depend on automated trading techniques. They can engage in automated trading by the use of Forex robots or expert advisers. The process of automated trading becomes very simple and easy when using fixed spread. However, this becomes problematic when the trader is using variable spreads or ECN. There are many benefits of using automated trading as the trade can be executed in the absence of the trader. The automatic trading becomes very problematic with variable spread because most Forex robots cannot use the floating spreads. This can end up in huge losses.
Easy news trading
News trading becomes very simple and easy when using spread which are fixed as compared to variable spreads. The news trading does not work well for variable spreads because the spreads significantly widens prior to big news that would like shake the market. This can leads into massive losses. This situation does not happen when the trader is using non-variable spread.
Conclusion
It is pretty important to understand the type of spread that your Forex broker offers. This greatly helps develop a good and profitable Forex trading strategy. The Forex broker can use either fixed or variable spread; all have their advantages and disadvantages. There are many other advantages of using fixed spreads other than what are discussed above. The fundamental benefits are that there is no uncertainty when trading. In addition, most Forex trading strategies only works well when the spread is fixed.
As far as using a reliable broker is concerned, I use FX Dialogue and i highly recommend them for their high quality customer service and reliable platform.
Profitable scalping
The opportunity to work on fixed spread often makes Forex scalping very profitable. As always, scalping would only be more profitable under tight spread. This is the primary benefits of this kind of spread. Scalping is a very profitable Forex trading strategy that many people are using. This trading strategy results is massive profits within a short time if markets goes in the traders' direction. To increase profitability scalpers often choose to work with Forex brokers offering constant spreads rather than using the market maker brokers. In this case, there is no swinging nature of the spread that could change the profit levels.
High level of transparency
There is high level of transparency enjoyed by both the trader and the Forex brokers when using non-variable spreads. The use of constant spread especially when dealing with interbank network does not give the Forex broker an opportunity to engage in unethical practices such as changing spread to favour their trading sides. This is a problem that affects very many traders. In most cases, some unethical Forex brokers would spike prices to favour them. They can do this by increasing the spread when certain huge news is anticipated. This results in conflict of interest between the broker and the trader.
Easy automated trading
Many traders depend on automated trading techniques. They can engage in automated trading by the use of Forex robots or expert advisers. The process of automated trading becomes very simple and easy when using fixed spread. However, this becomes problematic when the trader is using variable spreads or ECN. There are many benefits of using automated trading as the trade can be executed in the absence of the trader. The automatic trading becomes very problematic with variable spread because most Forex robots cannot use the floating spreads. This can end up in huge losses.
Easy news trading
News trading becomes very simple and easy when using spread which are fixed as compared to variable spreads. The news trading does not work well for variable spreads because the spreads significantly widens prior to big news that would like shake the market. This can leads into massive losses. This situation does not happen when the trader is using non-variable spread.
Conclusion
It is pretty important to understand the type of spread that your Forex broker offers. This greatly helps develop a good and profitable Forex trading strategy. The Forex broker can use either fixed or variable spread; all have their advantages and disadvantages. There are many other advantages of using fixed spreads other than what are discussed above. The fundamental benefits are that there is no uncertainty when trading. In addition, most Forex trading strategies only works well when the spread is fixed.
As far as using a reliable broker is concerned, I use FX Dialogue and i highly recommend them for their high quality customer service and reliable platform.