Variable spreads v/s Fixed spreads
When it comes to trading, spreads are the primary costs that make up a large part of the overall trading costs. There are mainly two types of spreads : fixed or variable spreads. The difference between the two is that fixed spreads remain constant while variable spreads fluctuate according to the market conditions.
In this article, we are going to break things for you so that you can choose the best type of spread for yourself:
- Variable spreads enable traders to access tight spreads which makes them quite favourable to day traders.
- Variable spreads are most transparent as your broker will provide you direct access to the market and the spreads will be quoted very close to the real market price.
- As variable spreads fluctuate many times a day, traders can take advantage of 0.0 spreads by trading certain major pairs during the high liquidity hours.
- Variable spreads are unpredictable and can widen quickly in times of extreme volatility.
- Another downside is if the spread widens to a level of your stop loss, it may execute a conditional order or you will be put on a margin call.
Variable spreads brokers
- Knowing exactly how much you’ll pay each time you trade allows you to plan your trades more effectively.
- During the release of big economic news, the market can be extremely volatile and fixed spreads can be highly appealing for news traders at that time.
- Traders who trade less frequently and can not keep up with peak hours should prefer fixed spreads.
- In fixed spreads, pricing doesn’t come from multiple liquidity providers but only your broker which makes it prone to re-quotes.
- During high volatility, fixed spread brokers can often fail to maintain a fixed price consistently which may lead to slippage.
- Commissions can be high
Fixed spreads brokers
Choosing any type of spreads depends on your personal preferences and needs but it should be remembered that each and every currency pair you trade is subject to spreads. Therefore, make this decision wisely.
Wish you happy trading!
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