Retail forex brokers provide access to the global forex market – commonly referred to as the Forex – for individual investors and traders. Within this market, these brokers offer various spreads, each providing unique benefits and challenges, depending on what type of trader you are. This article will explore the most popular spreads offered by retail forex brokers and discuss how traders can leverage them for maximum profitability.
Fixed spreads
Fixed spreads are one of the most common types offered by retail forex brokers. This spread does not change with market conditions, meaning it remains consistent throughout trading hours regardless of the volatility in the traded currency pair. Fixed spreads are ideal for beginners still getting used to the markets and want to avoid being exposed to sudden spread changes.
Variable spreads
Another type of spread offered by retail forex brokers is a variable spread. Unlike fixed spreads, which remain constant regardless of market conditions, variable spreads can change depending on the current level of volatility in the currency pair being traded. This spread offers traders more flexibility during times of high market activity. It allows them to take advantage of short-term price movements in the currency pair by narrowing or widening their spread accordingly.
ECN spreads
ECN (Electronic Communication Network) spreads are a third type available from retail forex brokers. These spreads allow traders greater transparency when it comes to pricing, as they are linked directly to the underlying liquidity providers in the interbank market. Therefore, traders will always get the best available prices and avoid exposure to any potential manipulation of spreads by their broker.
Commission-based spreads
Some retail forex brokers offer commission-based spreads. In this type of spread, traders pay a commission per trade instead of a fixed or variable spread. This type of spread is ideal for high-volume traders looking to reduce their overall trading costs and take advantage of low transaction fees.
Zero spreads
Some retail forex brokers offer zero-spread accounts. These types of accounts allow traders to trade without paying any spread whatsoever. This type of account is ideal for scalpers and algorithmic traders who take advantage of minimal price movements in the currency pair being traded.
Swap-free spreads
Some retail forex brokers offer swap-free accounts. This account allows traders to hold positions overnight without paying or collecting a rollover fee. It can be very beneficial for traders who want to take advantage of longer-term trends in the traded currency pair but want to avoid being exposed to additional fees.
Non-dealing desk spreads
Non-dealing desk (NDD) accounts are another spread some retail forex brokers offer. These accounts allow traders to access the interbank market directly and take advantage of liquidity from multiple sources. This type of account can benefit high-volume traders as it allows them to have greater control over their transactions and avoid potential conflicts of interest between themselves and their broker.
Islamic spreads
Some retail forex brokers also offer Islamic accounts that adhere to Islamic finance principles. These accounts do not allow traders to take advantage of any interest-bearing financial products, such as swaps and other leveraged instruments.
Why traders should choose a broker that offers various spreads
Access to a broader range of trading opportunities
A broker that offers several spreads gives traders more options when selecting their strategies, which means they can diversify their portfolio and access more trading opportunities, helping them maximise profits.
Improved risk management
Different types of spreads offer different levels of risk for traders. For example, fixed spreads are ideal for lower risk, as the spread remains constant regardless of market conditions. On the other hand, variable or commission-based spreads can be a better option for high-volume traders looking to take advantage of short-term price movements in a currency pair.
Increased flexibility
Brokers that offer multiple types of spreads give traders broader choices regarding how to approach different market conditions. Therefore, traders can customise their strategies depending on their risk appetite and the current level of activity in the markets.
