WHY CHOOSING THE LOWEST SPREAD FOREX BROKERS?

4 min readSep 6, 2018

In the recent years, I have been asked much about some brokers that are getting more and more popular — the lowest spread brokers. Why are these brokers so attractive to most traders? Or what type of traders should work with them? I am writing this to provide you the top 5 lowest spread forex brokers as well as the aspects of low spread brokers.

CLICK HERE FOR THE 5 BEST FOREX BROKERS

1. What is Spread? The differences between Spread and Commission.

Firstly, let’s answer the question: “What is the Spread?” Spread is the difference between the Bid and the Ask prices. It is also the fee of transaction and so, if the spread is high, the transaction cost is high, too. Thus, many traders prefer the low spread brokers but not all.

Market Maker, STP and ECN are 3 types of forex brokers. Major incomes of the first 2 types are from spread, whereas ECN’s income is from commission. When liquidity providers give the quotes to brokers, Market Maker and STP add the transaction fee (spread) to those quotes (this process is called Mash Up) while ECN keep the exact quotes given from liquidity brokers. This is the reason why Market Maker and STP have higher spreads than ECN’s. In contrast, ECN charges commission as its major income.

So, the differences are:

- Major income of Market Maker and STP brokers is from spread

- Major income of ECN brokers is from commission

- In fact, at ECN, your account is charged both commission and spread, but this spread is nearly zero so you only have to pay for commission.

Above are 3 typical types of brokers. Let’s find out more about Market Maker and STP as they are the brokers whose income is from the spreads.

Listed here is top 5 lowest spread brokers:

1. Exness.com

2. Hotforex.com

3. FBS.com

4. XM.com

5. FxPro.com

CLICK HERE FOR THE 5 BEST ECN BROKERS

2. Low spread brokers are not for all traders.

As usual, there are 2 main types of traders: scalpers and long-term investors.

Scalpers keep their positions open shortly (often less than 1 month) while long-term investors keep theirs longer (more than 1 month).

Scalpers would like to trade with low spread and low commission brokers as their main transaction fee is spread/ commission and they also have many transactions in a short time.

In contrast, long-term investors would like to trade with low swap brokers as the swap is their main transaction cost. They often keep their positions open for a long time and they don’t have to care much about the spread as the fee is only a maximum of 2% of their profit, meanwhile, the fee of swap is up to 90% of the benefit. Also, their earnings per transaction are hundreds of pips, which is a dramatic amount.

So which type of brokers would you prefer?

- If you are a scalper, you would choose the low spread brokers.

- If you are a long-term investor, you would choose the low swap brokers.

3. US and UK brokers’ spread are the highest.

The truth is US and UK brokers’ spread are much higher than the spreads of any other brokers. Despite the 2 biggest forex markets in the world, US and UK brokers’ spread are less competitive. Their costs are even twice as much as those of Australia and CySEC brokers. This example below indicates the spreads for EUR/USD of top forex brokers:

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

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 this information, US and UK brokers’ spreads are 1.8 pips and 1.7 pips, while CySEC brokers’ are only 0.7 pips, which means CySEC brokers have the lowest spreads and in contrast, US and UK brokers have the highest ones.

Due to the disadvantages of the regulations, US and UK brokers often charge more spread/ commission to balance their profit. The regulations in US and UK don’t allow to offer high leverage and bonuses, their fees are even higher.

Thus, there are some advices for the traders:

If you are ASIAN traders, Exness should be preferred.

If you are Africa traders, XM and FxPro should be preferred.

If you are US traders, Forex.com should be preferred.

If you are European traders, XM, FxPro and Exness should be preferred.

4. The most suitable low spread brokers for traders.

Below are some conditions for the most suitable low spread brokers for traders:

- Low spread and low commission. It means their cost must be reasonable or even lower compared to other brokers’ spreads. Of course, the brokers must be reliable and trustworthy.

- Local supporters. It is excellent to have the local supporters when you have any trouble. They will come and solve the problem immediately, instantly and safely.

- Regulated brokers. It is highly recommended that you should choose the regulated brokers who have your country’s regulations. If your country doesn’t have any regulation, it is still good if the brokers have reliable and trusted regulations from US, UK, AU…

- Local payment system. Traders can deposit or withdraw by Visa, Credit cards, Neteller… but its fee is too high (2–4% of total deposit amount). Thus, it would be better to deposit and withdraw by local payment system. Brokers who have local payment should be preferred.

In short: