If you are a forex trader, you should know that every forex broker are quotes two different prices for a currency pair, where one of them called a bid price, and the other is an asking price. When you sell your base currency, it's called the bid price. On the other hand, ask the price when you buy your base currency by trading. So, what is spread? in these two prices, the difference is called the Spread in forex trading. Some peoples also called it a bid/ask spread.
|Broker||Broker Type||Min. Spreads||Min. Deposit||Min. Position||Max. Leverage||Apply|
Do you see that there are a lot of brokers are offering to trade without commissions? We know that commission is the earning way for a broker house, so if they don't take commission, how will they earn?
The answer is simple, and if anyone is providing services to clients, they will want to earn something at any cost. Brokers will offer you to trade without a commission, but they will take the Spread from you. This is the best earning way for a broker house.
When you trade a currency in the market, you have to buy/sell to complete trades, and when you buy a currency, they will earn money from you because they will sell you to you with less than their buying prices.
On the other hand, when you sell a currency, they will buy it at lower prices. As a result, they are earning from both sides. That's why brokers can offer you to trade without commissions.
Let's clear the confusion by having an example, imagine that you want to sell your old MacBook to an online store that buys used MacBook. So, when you sell it to them, they bought it from you for $100, and they sell it to a customer for $101. So, there is a difference between the selling and buying price, that is called a spread. I hope you are now clear about the broker who is offering to trade with zero commission.
Forex brokers measure it based on pips, and you should know that pips are the minimum unit of the price movement for a currency pair. We have seen that the maximum time of one pip is equal to 0.0001 for maximum currency pairs.
So, how can I calculate the Spread? Let's take an example to get the proper idea of it. We will measure two pip spread for USD/AUD, think that 1.1041/1.1043 is the movement for a trade. The first is the base currency which is 1.1041, and AUD is the Quotes currency.
To find out the Spread, you have to minus the base price from the quotes price that means your Spread will be 1.1043-1041 =2 pips = Spread. This is the measuring system of the spreads.
There are two types of spreads available in the forex market which is 1) Fixed and another one is Variable, many peoples also calling it a floating spread.
So, already you have understood the Spread, will you choose a broker where the Spread is higher? Obviously not; you will select a broker where you can trade with a lower spread rate. Especially for scalpers, low spread brokers are the first choice for scalpers. They choose low spread brokers because they have to open a lot of trades in a single day. In that case, a commission may amount to 100 or more pips.
To save the cost of trading, they are choosing low spreads broker. Sometimes traders are not able to find the low spread brokers in one hand. We have a good solution for this; here is a low spread forex broker's list for you. You will find the lowest spread broker on the top of the table. If you scroll down, you will get higher spreads brokers. We hope it will help a lot of traders to find their favorite low spread broker easily.