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Why are professional traders looking for brokers with exactly such trading conditions? The answer is simple; the spread is the first thing a trader pays when opening a position, and since Forex trading pursues the goal of enriching the trader, every cent is important. How to choose the “right” broker, what the spreads are, and how to reduce your trading costs by increasing your profits – this is what we will be talking about.
Determination of the spread
The simplest definition of spread is the difference between the buy and sell prices. This fee is charged by your broker every time you open a trade. Therefore, the more trades you open, the more you pay the broker. To avoid losing money, your trades must be either zero (profit equals the spread, your net profit equals zero) or profitable (1 pip or higher).
Why is there a spread?
Because the broker wants to get his profit and spread is the only way for a broker to earn the profit. Considering that there can be several intermediaries (broker, bank, etc.) between the trader and the market, the size of the spread can be significant. Hence, use brokers with a minimum number of intermediaries, for example, ECN accounts.
If you are a scalper and not a medium-term trader who holds deals for a couple of hours – a maximum of a day, you need to make deals on instruments with the lowest Forex spreads. Indeed, with scalping, a trader can close dozens and hundreds of deals during a trading session, and the profit from each transaction is often 1-2 points or even can be unprofitable. It is not surprising that many scalpers increase trading volumes in case of closing unprofitable trades.
It is no coincidence that many traders simply adore the EUR / USD currency pair, for which brokers offer a very nominal spread.
Our choice is the smallest spread!
The first thing to pay attention to when choosing a Forex broker is trading conditions. Brokers with ECN accounts (and not only) may have additional one-time commissions when opening a deal. So, consider this as well.
The second is your trading style. If you trade for a long time, opening 10-20 trades per month (trades are held open for days and weeks), then even if you use a currency pair with a large spread of 10 pips, this will not greatly affect your profit. If you are a day trader and even trade on several instruments, the latter’s choice is very important.
It is completely different when a trader is trading more aggressively. Spreads must be very tight, so it is important for a trader to “squeeze” each point. The second place is occupied by the absence of slippage (requotes). That is, the deal must be opened/closed at a clearly defined price. We again return to ECN accounts, where the lowest spreads operate, and trades are executed almost instantly, eliminating the possibility of slippage. Do not forget about the possible commission in case of trading on such accounts.
Let’s summarize.
Spread is very important for active traders, so choose a broker with the smallest spreads. Knowing which currency pair(s) you trade, which trading style you prefer (aggressive or moderate), you can and should choose a broker with trading conditions suitable for your trading system. Thus, you will both earn and save, that is, earn twice.
