Which Forex spread is better? Fixed spread or Variable


Which Forex spread is better? Fixed spread or Variable? Theory suggests there are ways of determining what suits your trading strategy best.

AtoZForex The key idea of having your Forex spread fixed or variable is quite simple. In case you utilize the fixed spread, you are receiving the same charges for each position that you place every time. In the same way, when you spread is floating, the spread charges are not fixed. They are varying at different points of times while being dependent on the volatility in the market and trading instrument.

What is the difference: Fixed vs Variable spread

Some of the experts believe that variable spreads are usually less expensive under the normal market environment. However, these become more costly at times of high volatility.

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Brokers are charging the clients with spreads, and the latter usually reflecting the model of the broker. The costs of the spreads are passed to traders. The costs are normally resulting from the feed provider and the dealing desk system.

However, spreads are also a way how the broker makes the profit. The broker is putting a small markup on every trade of the client. Thus, it is definitely vital for traders to look around for the best spread. There can be pretty significant variations between the brokers’ offerings. The offerings are, in turn, depending on the primary model. The positive point here is that the introduction of non-dealing desk models has diminished the cost for brokers. This development has impacted the low-cost spread options.

See also: Comparison of Forex Broker Types: ECN, STP and Market Maker

Which Forex spread is better? 

You choice of which Forex spread is better should mirror your trading strategy. The important things about your strategy, in this case, are when and what you trade.

Thus, in case you usually trade in high volatility times, then variable spreads will appear higher than fixed. Therefore, you choose a fixed spread in this scenario. In case you are likely to trade in normal market conditions, choose floating spread, as this would be more beneficial for your trade.

It can be complicated…

Yet, everything is not that easy. It can be challenging to understand the impact of your trading strategy on your choice of the spread. For instance, what if you trade in a relatively volatile market? Would the variable spreads exceed the fixed spreads or stay below? What would be the impact of the market spread?

It happens that sometimes the fixed spread options are changing. The market spread is the spread of the actual market in times of high volatility. When the market conditions are normal, the market spread is at zero. Thus, it will not affect total costs. However, in a volatile market, the costs will be added. Eventually, the fixed spread trader will end up paying the usual spread and the additional market spread.

There is more! One more factor of impact is the associated terms with choosing a fixed of floating spread. Sometimes traders are not provided with access to bonuses for a certain type of trading. Moreover, there could be fewer instruments available or restrictions to trade with a specific option. These conditions may impact your ability to trade.

Do you prefer fixed spread or variable? Think we missed something? Let us know in the comments section below.

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