LOWEST SPREAD RATE BROKERS

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Despite being received several questions about the list of lowest spread broker, I still hesitate to answer since I am concerned that people might not have the right understanding about spread and use this list for wrong purposes. That is the reason why this article is aimed to help traders to understand about the concept of low spread in forex trading.

Basically, spread is the difference between the Bid and the Ask prices. In detail, it is the transaction fee you have to pay for brokers or banks. The higher the spread, the higher the transaction cost. This explains why brokers with low spread rate is always traders’ favorite. Based on my experience, I will explain my exclusive understanding about the forex trading market.

What are the differences between Spread and Commission?

There are 3 types of forex brokers: Market Maker, STP, and ECN. For the first two,  their spread rates are much higher than that of ECN brokers since spread is their main income. When they get quotes from liquidity providers, they will add up the transaction fee (spread) to those quotes (a process called Mash Up). Meanwhile ECN brokers will provide the exact quotes as the liquidity providers offered and charge commission as it is their only main income.

So what are the differences?

  • The main income of Market Maker and STP brokers is spreads.

  • The main income of ECN brokers is commission.

  • For ECN accounts, you will be charged both commission and spread fee, but keep in mind that those spreads are equal to none. This is why the main fee you have to pay is still commission.

To tackle the question about low spread brokers, it requires enough understanding about Market Maker and STP brokers’ spreads.

First of all, here are top 5 lowest spread brokers:

  1. Exness.com

  2. Hotforex.com

  3. FBS.com

  4. XM.com

  5. FxPro.com

You can review Exness here.

What type of traders need low spread brokers?

In the forex trading market, there are two main types of traders: scalpers and long term investors.

To explain, traders who keep their positions open less than one month are scalpers. On the contrary, traders who keep their positions open for more than one month are long term investors.

For scalpers, their main transaction cost are spread and commission since most of their positions are opened in a short time. Moreover, they only earn a few pips for each order,so they would prefer low spread and low commission brokers.

For long term investors, they can earn as much as hundreds of pips per position since their positions are kept opened longer. Therefore, their main transaction cost is swap and they only have to pay a maximum of 2% of their profit for spread charge. Yet in some cases they have to pay up to 90% of their profit for swap. In other words, long term investors prefer low swap brokers.

So what type of trader are you?

If you are long term investor, spread is none of your concern.

If you are scalpers, spread and commission are important.

Read more about best forex brokers 2018

LOWEST SPREAD RATE BROKERS

Why US and UK brokers’ spreads are higher?

US and UK are the two of the biggest forex markets in the world despite having less competitive advantages in term of transaction cost. Based on my experience, I realized that US and UK brokers usually offer higher spreads and commission than Australia and CySEC brokers.

Example:

Broker Name

EUR/USD spread

Regulation

Exness

0.7 Pip (Classic account)

CySEC, FCA

Hotforex

1.1 Pip (Premium account)

Vincent

FBS

1.1 Pip (Standard account)

Belize

XM

1.7 Pips (Zero account)

FCA (UK)

FXTM

1.7 Pips (Standard account)

Belize

Forex.com

1.8 Pips

NFA (US)

FxPro

1.7 Pips

FCA (UK)

According to the table, CySEC broker and Exness has the lowest spread while UK and US brokers have the highest spreads. UK and UK spreads are twice as much as that of Exness.

Why do US and UK brokers have higher spreads?

In fact, US and UK brokers are not allowed to offer high leverage or bonuses due to their regulations. Therefore, brokers in US/UK regions have to charge more spread and commission fee.

In short, here is my advice for new traders:

If you are an ASIAN trader, Exness is the best broker for you.

If you are an Africa trader, XM and FxPro are the best choice.

If you are an US trader, Forex.com will be suitable for you

If you are an European trader, XM, FxPro and Exness are the best.

Click here to find out more about Exness.

How to choose the best low spread broker?

Again, only scalpers should be concerned about low spread brokers. If you are a long term investor, swap is more important.

But there are a dozen of low spread brokers, so which one is the best for you?

Here are the basic criteria to choose the best low spread broker for you:

  • Regulated brokers. As long as a broker is regulated in your country, choose it. In case your country has no regulated broker, you should choose trusted brokers with the lowest spread rate.

Learn more about regulations here.

  • Brokers offering local payment system. Some low spread brokers do not provide local payment systems, which means that traders can only deposit or withdraw by using Visa, Credit card, Neteller, and Skrill, etc. This is why you should avoid trading with them since you also have to pay 2 - 4% of your total deposit amount as the fee for those international payment methods. This price is just too much comparing to the usual income of a traders.

Check out the Exness Payment system here.

  • Low spread and commission.

  • Good local supporters.

To sum up:

  • If you are an ASIAN trader, Exness would be the best broker for scalpers.
  • If you are an Africa trader, XM and FxPro are the best choice.
  • If you are an US trader, Forex.com will be suitable for you
  • If you are an European trader, XM, FxPro and Exness are the best.

 

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