Recently, I have received a lot of emails asking information about the lowest spread forex brokers. Obviously, itís quite easy for me to make a list of 5 lowest spread brokers. However, those emailing me may not know what they want and what they should do with the list. Understanding that, I write this article to show the aspects of the lowest spread forex brokers.
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Many of you may know that spread is the difference between the Bid and the Ask prices. Or in other words, it is the transaction fee you have to pay for brokers or banks. Most traders want to trade with the lowest spread brokers as their transaction costs are lower.
In this article, I will focus on four aspects of top 5 lowest spread brokers which are differentiating between spread and commission, reasons making US and UK brokersí spread higher, type of traders needing low spread brokers, and ways to choose a good low-spread broker.
1. DIFFERENTIATING BETWEEN SPREAD AND COMMISSION
Forex brokers consist of three types: Market Maker, STP and ECN. The main income of Market Maker and STP brokers are spread. Also, when getting quotes from liquidity providers, they will add the transaction fee (spread) to those quotes (Mash Up process). As a result, their spreads are higher in comparison to that of ECN brokers. On the other hand, ECN brokers offer the exact quotes provided by liquidity providers. They hence will charge commission as itís their main income.
From what analyzed, I conclude that spread and commission are differentiated by three things. First, spread is the main income of Market Maker and STP brokers. Second, commission is the main income of ECN brokers. Third, you are charged both spread and commission for ECN accounts, but the spread is nearly zero. So you just have to pay commission.
Following is the list of top 5 lowest spread non-ECN brokers for your reference as the question is about low spread brokers.
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2. REASONS MAKING US AND UK BROKERSí SPREAD HIGHER
Though US and UK are the two largest international forex markets, their brokers are not as competitive as others in terms of transaction fee. Usually, their spread and commission are higher than that of Australian and CySEC ones.
For more consideration, look at the table below.
Brokerís name EUR/USD spread Regulation
Exness 0.7 pip (classic account) CySEC, FCA
Hotforex 1.1 pips (premium account) Vincent
FBS 1.1 pips (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)
The table shows that the lowest spread is offered by Exness brokers. The highest one is offered by US and UK brokers, which is double that of Exness ones.
Now I will explain why US and UK brokersí spread is higher: Being controlled by US and UK regulations, those brokers cannot offer high leverage. Besides, they have to pay regulation fee. Therefore, they have no choice but charging more spread and commission.
Here, I have some advice which you can consult.
● If you are Asian traders, Exness is the best broker for scalpers.
● If you are African traders, XM and FxPro are the best.
● If you are US traders, Forex.com is the number one.
● If you are European traders, XM, FxPro and Exness are perfect choices for you.
3. TYPE OF TRADERS NEEDING LOW SPREAD BROKERS
Traders include two types: scalpers and long-term investors. Scalpers open and close many positions within short time, and usually, they keep those positions less than a moth. Long-term investors keep their positions over a month.
For scalpers, spread and commission are their main transaction costs. They just earn some pips for each order, so they tend to choose low-spread brokers.
For long-term investors, they can earn hundreds of pips for each order, so they donít care much about spread and commission. However, they have to pay swap which is sometimes up to 90% of their profit. Thus, they prefer brokers with low swap.
4. WAYS TO CHOOSE A GOOD LOW-SPREAD BROKER
Below are the conditions for choosing good low-spread brokers.
- Regulated brokers
- Brokers with local payment system
- Low spread and commission
- Good regional supporters.
This is the end of my article. Though it cannot bring you all information you need, I hope it can help you get more awareness of top 5 lowest spread brokers. From that, you can select a suitable broker to trade with.
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