Ultimate Guide: How To Choose a Low Spread Forex Broker

Trading forex can be extremely frustrating if you barely make a profit and nearly all of it is spent on covering your spread whenever you close your position. A low spread forex broker is likely to be the best choice for you if you are a beginner trader or someone who frequently trades on the forex market. So, what is considered a low spread in forex？ And how does choosing a low spread Forex broker to benefit a trader？ Well, that is exactly the question we will address here.

What is considered a Low Spread in Forex？

In Forex trading, a low spread refers to how relatively small the spread difference is between the bid and ask price of a currency pair. It‘s important to understand that Forex spreads fluctuate throughout the day, varying between a ’high spread‘ and a ’low spread. The spread varies for each trade depending on several factors like volatility (market fluctuations) and liquidity (volume of trades).

Usually, the spread offered by some brokers appears to be very small, a few pips at most. However, if a trader is trading on margin and holding large positions, spreads can easily accumulate to a significant operating expense for the trader. This is the reason why you should always choose a low spread forex broker. The primary advantage of choosing a low spread forex broker is that it allows you to reduce your trading costs by a significant amount. The smaller the spread, the lower you can buy, and the higher you can sell when compared to a broker whose bid and ask spreads are higher. 

For example, consider that Broker A offers an average spread of 0.15 pips on the EUR/USD pair, and Broker B offers an average spread of 0.10 pips on the EUR/USD pair. Comparably Broker B would make a good place to start if you're looking for a low spread. The lowest possible spread offered by a Forex broker is 0 to 1 pip.

However, while a low spread may seem attractive, its important to realize that brokers will not provide their services for free, and there is usually a trading commission involved. Make sure you familiarize yourself with the Forex trading costs before looking for a low spread Forex broker.

What makes Low Spreads important in Forex trading？

Low spreads can be advantageous to traders in many ways. Primarily, trading with low spreads will keep your trading costs low, thus making your entry and exit points more convenient. By choosing a low spread Forex broker, traders can trade assured that the difference between the Ask and Bid prices will remain constant no matter how much the markets fluctuate.  

Trading with a low spread proves to be very useful when it comes to planning trading costs, enhancing forex risk management, and limiting the traders exposure to high costs. Low spreads are best suited for beginners, scalpers, and short-term traders.

Not every currency pair offers Low Spreads 

Yes, low spreads are not applicable to all currency pairs. Some currency pairs will always have a higher spread than others. Major currency pairs usually have a lower spread because of their highly traded volume. The EUR/USD forex pair has the lowest spread compared to any other major currency pair in the market.  

Exotic currency pairs, on the other hand, are rarely traded currencies in the forex market and have a small role in the global financial system, and are rarely used for international trade. Unlike major currencies, exotic currency pairs have higher spreads because of their extreme price volatility and low trading volumes.  

Cross-currency pairs are also subject to slightly wider spreads. Despite the fact they have sufficiently liquid markets, they are not as liquid as major currency pairs. Some examples of cross currency pairs are; EUR/GBP, GBP/JPY, and EUR/CHF.

How Low Spreads can benefit Forex Scalpers？

Scalpers and daily traders can greatly benefit from a low-spread forex broker. A scalping strategy in the Forex market involves making many small trades over very short time frames to take advantage of small price changes in the market. Since the spread is effectively a commission from the broker, the lower the spread, the greater the profits you will make every time you trade. 

For example, let's assume a currency pair moves 20 pips long for a minute, then pulls back by 10 pips the next minute, oscillates around this level for another 5 minutes, and then makes another strong move of 20 pips over the next 10 minutes. While this is usually a minor move occurring over a matter of minutes in the Forex market, this actually presents a great opportunity for scalpers as this is what they are looking for. A typical forex trader would expect to make a 5 pips profit from a 1-minute trade, while a scalper would aim for 10 pip profit from a 5-minute trade.

As the trades are so small, the importance of choosing low-spread currency pairs is evident. If the spread is too large, no profit will be left after the trade ends. This trading style is very popular among day traders since it focuses on small trades and creates numerous opportunities within a single day. At the same time, too many profitable trades can lead to overconfidence and overtrading, resulting in a greater loss when the trade goes wrong. 

The key benefits of using low spreads for forex scalpers are, 

• The opportunity to make a higher profit than you would by simply making positional trades. 

• You dont have to wait around for a strong trend to develop. Traders can take advantage of the market flow to decide which trades to make. 

• You can take advantage of many trading opportunities within a short period of time. Therefore, you will make more profit. 

• Because you will trade according to the market flow, there will be no pressure to analyze the overall market. 

However, scalping can also lead to downsides as it is difficult to predict the markets direction on a minute-by-minute basis. If you want to make money by scalping, you have to be consistent. This type of strategy requires you to win trade after trade in order to accumulate profits.

Benefits of choosing a Low Spread Forex Broker

One of the biggest advantages of choosing a low spread forex broker is the reduction of upfront costs. Since the spread functions as a form of commission that forex brokers charge, lower spreads mean lower trading costs for you. Furthermore, low-spread brokers allow the execution of direct trading, which means that the quotes they provide are close to current market rates. 

Low spread brokers make it easier to calculate the potential profits and losses from each trade you place, enabling you to develop a more informed trading strategy. Especially if you are a day trader who makes money from numerous incremental price movements in currency pairs, a lower spread forex broker should definitely be a top priority. Get the lowest possible spreads on all major currencies ranging from 0 to 3 pips when you open a forex account with AximTrade.

Factors to consider while choosing a Low-Spread Forex Broker

It is crucial to carefully do your own research while you look for a low spread forex broker, as a promise of low spreads does not ensure that a given broker offers the lowest trading costs for your strategy. Be aware of the following situations: 

• The spreads offered by brokers usually depend on the type of trading account and the currency pair you trade. Some scam forex brokers might entice traders with the promise of offering a low dealing spread in exchange for a high commission. So, it is crucial to make sure you are aware of all the trading costs involved.  

• Some forex brokers that offer you a low spread to trade can require a high minimum deposit to open a position. As a result, it is a good idea to familiarize yourself with the minimum deposit requirements of a broker. Opening a forex account with AximTrade requires just $1 as a minimum deposit. Check out the AximTrade review to find out the brokers reputation in the financial market. 

• It is also possible that some low-spread forex brokers may offer you a low-quality trading platform with limited currency pairs and instruments that are completely fraudulent. Make sure the broker you choose is providing an authenticated trading platform, like MetaTrader (MT4) and offers you full access to all the indicators and currency pairs required for successful trading. With AximTrade, you can trade 49+ forex currency pairs and various indicators over the MT4 platform. 

Despite the fact that spreads are different from commissions, both serve the same purpose as compensation for forex brokers. Failing to consider the potential trading costs can reduce your overall profit substantially and can drastically affect your portfolio performance.

Best Forex account type with low spreads

ECN brokers usually offer the best trading conditions with relatively low spreads since the ECN instantly matches orders from traders with the best available buy and sell prices by itself. Another reason that an ECN account can be beneficial is that its network provides liquidity.  

A forex broker typically provides an ECN account in addition to traditional accounts and charges a commission fee per lot with a deposit limit and lower leverage. Therefore, traders will be able to enter and exit positions at more advantageous prices than what is available through a traditional forex account. 

CENT accounts are also becoming increasingly popular among forex traders because of the small minimum deposit limits and the possibility of trading micro and nano lots. With the AximTrade ECN account, take advantage of the lowest spread available in the market which is as low as 0.0 pip, and as low as 1 pip with the AximTrade CENT account.

How to check the average and minimum spread of a currency pair

With AximTrade, you can now easily find out the average and minimum spread amounts for the currency pair you trade.  

• Go to the “AximTrade” website. 

• Select the “Trading Products” option found next to “Home” on the upper right. 

• Select the second option of “Trading Products”, which is “Tools and Specifications”. 

• On the “Tools and Specifications” Page, you can see the average spread and the minimum spread for the currency pair you trade out of all the major, cross and exotic forex pairs.  

• Furthermore, it is also possible to compare the spread amounts between Standard, CENT, ECN, and Infinite Leverage Accounts. 

Finding the right Forex broker is essential in order to execute successful trades and remain profitable with lower spreads. At AximTrade, we work with the best liquidity providers that offer us the best pricing in the markets, making our spreads comparable with some of the best offered globally.

Original Article: Ultimate Guide: How To Choose a Low Spread Forex Broker

Disclaimer: This post is from Aximdaily and it is considered a marketing publication and does not constitute investment advice or research. Its content represents the general views of our editors and does not consider individual readers' personal circumstances, investment experience, or current financial situation.