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There will be times when the forex market is volatile and prices are rapidly changing. The requote message will appear on your trading platform letting you know that price has moved and asks you whether or not you are willing to accept that price. Slippage is another problem. When prices are moving fast, the broker is unable to consistently maintain a fixed spread and the price that you finally end up after entering a trade will be totally different than the intended entry price.
Slippage is similar to when you swipe right on Tinder and agree to meet up with that hot gal or guy for coffee and realize the actual person in front of you looks nothing like the photo. As the name suggests, variable spreads are always changing. With variable spreads, the difference between the bid and ask prices of currency pairs is constantly changing. Variable spreads are offered by non-dealing desk brokers. Non-dealing desk brokers get their pricing of currency pairs from multiple liquidity providers and pass on these prices to the trader without the intervention of a dealing desk.
This means they have no control over the spreads. And spreads will widen or tighten based on the supply and demand of currencies and the overall market volatility. Typically, spreads widen during economic data releases as well as other periods when the liquidity in the market decreases like during holidays and when the zombie apocalypse begins.
Oh, and spreads may also widen when Trump randomly tweets about the U. Variable spreads eliminate experiencing requotes. This is because the variation in the spread factors in changes in price due to market conditions. Trading forex with variable spreads also provides more transparent pricing, especially when you consider that having access to prices from multiple liquidity providers usually means better pricing due to competition.
The widened spreads can quickly eat into any profits that the scalper makes. Variable spreads are just as bad for news traders. Spread may widen so much that what looks like a profitable can turn into an unprofitable within a blink of an eye. The question of which is a better option between fixed and variable spreads depends on the need of the trader. There are traders who may find fixed spreads better than using variable spread brokers.
The reverse may also be true for other traders.
Our variable ECN spreads come from up to 26 different liquidity providers consisting of tier-1 banks, non-bank market makers and ECNs. This gives traders access to the tightest prices available, reducing your trading fees. Fractional pricing is how prices are quoted in the interbank forex market. Price takers traders can see these prices and execute trades against them. Spreads from 0. Global Prime has spreads from 0. We prove this with trade receipts rather than fancy marketing terms.
The Spread is the difference between the market bid and ask price on a security for an immediate order. The spread is represented by the bid and offer quotes and can be perceived as a measure of liquidity in the market. Generally speaking, tight spreads are indicative of high liquidity whereas wide spreads are an indicator of scarce liquidity. The bid price represents the maximum price that a buyer is willing to pay for a security and the ask price represents the minimum price that a seller is willing to take for the security.
Variable spreads deliver the best bid and offer prices available at a certain time as opposed to having the spreads fixed at a certain level. Global Prime offers some of the most competitive spreads in the market. With the average spreads on majors as low as 0. Global Prime does not have a dealing desk as we provide clients unfiltered access to our network of liquidity providers.
We do not profile clients nor market make which ensures our interests are aligned with the clients. Our new lowest fee model. Personal Pro. Help English. Why Global Prime? Need Help? Start Trading. Don't listen to us - listen to them! Chart by TradingView.
ECN spreads from 0. We offer variable spreads only As an ECN forex broker, Global Prime passes on the prices it receives from its liquidity providers to traders. This significantly compresses the spreads streamed to traders and reduces trading fees. Your questions, answered. What does ECN mean? How do traders make profits from spread? If you look at the above figure, you will see that sometimes spread narrows and sometimes widens. So, the primary goal for investors is to use the spread itself as a way to generate profit when the spread widens or narrows.
Spreads are either "bought" or "sold" depending on whether the trade will profit from the widening or narrowing of the spread. To make profits from a narrowing spread, you need to watch the periods when the difference in the quotes of two assets is greater than the average value. In general, the strategy of making money on spreads is one of the longest, as it requires preparation and works out more often in long-term timeframes. In my memory, there were positions, the implementation of which took about a year.
This strategy is the most conservative, as there is almost no risk. Therefore, it is usually used by large financial institutions, such as pension and insurance funds, and simply by large investors. Let us analyse the position. First, we need to study how two assets have been moving relative to each other over a historical period.
An ideal option would be to overlap two charts, but not all trading platforms provide such a possibility. After overlapping the charts, we need to determine the average price difference for these assets. In the above chart, I marked the most noticeable spread changes on the left.
The difference in prices reached 10 USD. Ideally, the position is formed on the expectation that a more expensive asset will depreciate and the cheaper one will appreciate so that the difference in values will narrow.
But such a situation is a rare case. Most commonly, two assets are moving in the same direction and the cheaper asset rises in price faster, thus narrowing the spread. To avoid risks, one should open a counter position. It means we sell the more expensive oil and buy the cheaper one.
The strategy would seem to fail. The total position has yielded a profit of 7. The profit could seem insignificant. But you need to take into account a lot of factors. First, the position is almost risk-free. Second, this is an example for one lot, so it is convenient to calculate. Now, imagine that financial institutions open such positions. They make huge profits with virtually no risk. By the way, this position is one of the ways that banks earn by using depositors' money.
This position is opened while betting on the widening of the spread. You need to spot the moments when the difference in the asset values is the tightest and open a position expecting the spread to widen. Let us look at the right part of the chart above. There is an opportunity to make a profit from the spread widening.
Here, we shall sell the cheaper asset and buy the more expensive one. So, the total position has made a profit of 4. As you see, the position bears almost no risk. The only risk is time. In the opposite case, the position will be losing. In this case, you just hold the position on. It should be noted that you can trade spreads using only closely correlated assets.
You should not trade spread using assets from different sectors. In the above chart, in addition to the BID and ASK columns, there is the third one that shows the spread size for each trading asset. You see, spreads are quite narrow for some instruments, about pips. For other assets, the spread size could reach or pips.
There are several factors affecting the spread width. First of all, the spread is affected by the liquidity of the trading instrument. In simple terms, liquidity is the popularity of a trading instrument. The more trades conducted with an asset, the more liquid it is. This is a key parameter to calculate the spread size. High liquidity always correlates to a tight spread. And vice versa, low liquidity corresponds to a wide spread.
You can see from the above table that the popular currency pairs are always traded at a narrow spread. This is the law of stock trading. Volatility also greatly affects the size of the spread. When volatility increases, the number of price fluctuations increases, which means that the spread will widen.
When volatility declines and price changes occur less often, the spread will narrow. Thus, the spread in the foreign exchange market is an indicator of volatility. Everyone knows examples when, at the time of publication of important fundamental news, volatility increased sharply, and the spread also increased. And in some banks, the difference between offer and demand prices reached Another part of the spread is the interest of the intermediary, that is, a broker or dealer.
The intermediary sets the broker spread, but without going beyond. Each broker offers its own spread, but in the end, they will be about the same, because the share of the broker in the spread is not so high. Unpopular brokers set a higher spread, while popular ones, on the contrary, try to reduce it as much as possible in order to attract new customers.
There is no great need to calculate the spread in points since it is almost always indicated in your terminal or mobile application. And here's how to convert this spread in points into dollars or euros. The picture above is a screenshot from the mobile application of my LiteFinance broker. There are two prices in the transaction window, the buying price and the selling price.
As we have already found out, these are Bid and Ask prices. Now we need to convert the pip spread into money. I use the account currency, US dollars, so we will need to convert the pips to dollars. In my example, I decided to enter a trade with a volume of 1 lot.
For a volume of 1 lot, the formula for calculating spread will look like this: 1. In my case, it will be equal to 0. If you want to calculate the spread cost for a different trade volume, you need to change the number of currency units. For example, for 0. Of course, you can calculate the spread manually, but trading has advanced quite far and every self-respecting broker has long been providing the service of a trader's calculator, which will calculate the spread and other transaction parameters for you in real-time.
Going back to the spread concept, I want to stress that the buy spread and sell spread are a bit different. When you buy you pay the spread when you enter a trade and when you sell you pay the spread when you exit the trade. Well, now you know how to calculate spread. I will start with the MetaTrader 4 trading terminal. When you want to enter a trade in the Metatrader terminal, you need to set parameters for the future transaction in the trade window.
In the same window, you see the selling price and the buying price. If you compare these two prices in the above example, you will see that the difference between the values is just two pips, 1. It means that the spread at the time of entering a trade is less than a point, 0. This is a very narrow spread, which is, by the way, normal for this broker. This tab displays the buying and selling prices, and the spread value in a separate field. In this example, the spread is even tighter, 1 pip.
The price of the currency pair is 1. The difference of 1 pip is the difference between buying and selling prices. As we want to buy, someone should sell. The seller is in the foreign exchange, and its selling price is 1. At this price, the trade will be entered, although the last price in the chart will be 1. This is because we pay the price appointed by the seller. After a while, the price rises and we decide to exit the trade. So, we are going to sell the asset we bought earlier.
The buyer sets the price of 1. Thus, summing up all these prices, we see that the price covered the distance between 1. But we made a profit from the distance between 1. Two missing pips are the spread. As I said, the spread is the difference between the buy price and the sell price. The above chart shows that these prices are currently the same, and the spread is 0.
This is possible only on the ECN accounts. If you are lucky to enter a trade at such a moment you will enter a zero spread forex trade. But do not forget that you will have to pay a commission for the transaction execution. For major trading instruments, the spread is always expressed in pips. To find out the cost of the spread in the currency of your transaction, you need to convert the pips into money. It is easy if you know the pip value. In the above chart, the spread is one pip.
To calculate the cost of the spread we also need the trade volume. As an example, I will use the standard trade volume of one lot. And since our spread is 1 pip, it will cost 1 USD. Thus, entering a trade with the contract size of one lot, we will pay the spread of 1 USD, which will be charged at the moment of opening the position. It means that at the moment of opening the trade, we will immediately lose 1 USD, the amount of the spread.
So, we should earn at least the amount of spread to break even. Fixed spreads are normally determined by a dealing company for micro- and mini-accounts that are served automatically. It is the spread whose size is changing, depending on the market situation.
The variable spreads are close to the conditions of the real interbank market. However, a floating spread weakens the performance of some trading strategies and makes strategy testing much more difficult. A fixed spread is determined by the broker. In most cases, a fixed spread is a favourable factor for a trader, but its value is usually higher than a raw market spread.
There are rather few forex brokers offering a fixed spread. The floating spread has become so popular that it has almost completely replaced the fixed spread. There are hardly any advantages in trading with a fixed spread. That is why this type of spread can entirely disappear. No slippage.
The slippages are often talked about and most beginner traders are really afraid of a slippage. In fact, this is a market feature that can be avoided on fixed spread accounts. In other words, the broker will always execute your contract in full, which will avert price slippage. I suppose everyone has witnessed a situation when the spread for a trading instrument sharply widened due to an important news release in the economic calendar. This is the biggest flaw of the floating spread.
But the fixed spreads are not affected by anything, as a broker has set a fixed range for the spread. You always know the spread size. Traders often used automated systems, robots, and scripts, in the forex market. These systems are based on algorithms, and these algorithms are easy to build when you know the spread in advance. You can always take it into account when setting up order triggering and in the final result.
It's hard to find a broker. In the modern forex market, where the leading roles have taken over ECN accounts with NDD order execution technology, that is, without the participation of a broker, it is very difficult to find a broker providing accounts with fixed spreads. Fixed spreads can usually be applied to cent accounts, which are less and less popular. The fixed spreads are usually rather big. If the broker provides fixed spreads, it must take into account the volatility, its own profit, and the profit of the exchange.
To compare, the current floating spread for this currency pair is about 0. The choice is obvious. Requotes on the Instant Execution account types. There are several types of trading order execution modes. One of the most popular is the Instant Execution mode. If you apply the Instant Execution mode and the spread is fixed, you cannot avoid requotes.
For scalpers, this is even more dangerous than slippage, because a scalper can destroy the entire system due to one failed order. Floating spread is the most common type of spread nowadays. It is popular because it is profitable for all parties taking part in the transaction.
Brokers and dealers can regulate and adjust it fast to changing market conditions, which allows solving 2 problems at a time: provide clients with higher-quality services and earn at the moments when the spread increases. This spread fluctuates in a certain range based on changing market conditions. This type of spread is favourable to manual trading. The above chart displays variable spreads for major currency pairs.
As you see, a floating spread seldom exceeds even 1 pip and in most cases, it is from 0. The above screenshot displays the spread in the trading terminal window. At the time of the snapshot, the spread between the buy and sell prices is only 0. Trading with such a low spread is very beneficial for short-term trades, where the spread is one of the main cost items.
Narrow spreads during most of trading session. As we know trading hours in forex are provided by four large exchanges. And since most of the time falls on the work of the European and American trading sessions, variable spreads at this time will be minimal and can widen only in moments of serious shocks, which do not happen so often. No requotes. I wrote about requotes as a drawback of fixed spreads.
Well, in trading with variable spreads everything is vice versa, your trade will be executed in any case. The only risk here is slippage. There could be zero spread. Sometimes, when the market situation is calm and still, nothing special or extraordinary happens, you can catch a moment when there is no spread at all.
I have come across such a situation in trading major currency pairs several times. The broker is entirely excluded from the trading process. Transactions are executed using the No Dealing Desk technology, which completely excludes the broker from the processes of determining spreads, quotes, and other things. Thus, traders can be sure that they deal with real market participants and have access to real exchanges. There could be slippages.
This is perhaps the biggest flaw of the variable spread. At times of increased volatility, your trade will be executed, but the opening price of the trade may differ from the one at which you planned it. This happens when the market price changes so quickly that it sometimes goes right through the orders set in the order book. Widening spreads in case of low liquidity. During periods when there is no trading activity in the market, for example, during the Asian trading session, spreads widen to a significant size.
This also happens before the market trading closes for the weekend. Sometimes the spreads widen so much that they become larger than the fixed ones. This circumstance matters for traders using robots and scripts. If your trading robot is supposed to enter a lot of trades in a short period, a floating spread could be a reason for a loss in a series of trades. After describing the disadvantages and advantages of both types of spread, I decided to sum up the most important ones in the table below to determine which of them is the best.
As you can see in the table, the floating spread has more key advantages. This is quite logical, since variable spreads are a necessary condition to make sure that you are trading in the exchange, and the counterparties are real market participants, not the broker itself. When trading with a floating spread, you can always find a moment for your trade when you can pay less. The only cost for you will be the commission, which will almost always be lower than the fixed spreads. With popular and large brokers, floating or variable spreads are always very close to the raw market ones.
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