Trading forex there is one thing we are always on the lookout for. That is, the lowest possible spread. But, what is a low spread in forex actually? That is exactly the question we will address here.
We will run through what a low spread is, and how you can find the lowest spread forex broker to allow you the best possible opportunities in forex trading.
Let’s take a closer look.
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What is considered a low spread in forex?
A low spread exists when there is a very small difference between the bid and ask price on an asset such as a forex currency pair. There are certain averages and expectations in place around different forex trading pairs that help confirm whether a spread is low or not.
If the spread is around the industry average then it could be considered low. It may also go below the average in cases where markets are highly liquid, and stable. The lowest spreads you will find are 0 pips which are generally offered by STP/ECN brokers.
Keep in mind though that where you see a low spread like this, there is often a trading commission since the broker has to make revenue in some way. The average in the industry for commission is below $5 per round turn trade on a standard lot.
To get to know more about spreads in general, you can check out our ‘what is good forex spread’ guide right here.
Why are low spreads important in Forex?
A low spread is important for many reasons. Above all, it means you can keep your trading costs down. It also allows you to enter and exit positions with more flexibility given the lower cost. The bottom line though comes down to exactly that, your profits.
Overall, even if you factor in the commission you may have to pay with some of the ECN/STP brokers, it will typically still work out to be a lower overall transaction cost than if you were paying higher spreads. The more you trade, the more true this becomes.
That’s why scalpers love tight forex spreads
Scalpers in particular love and need to have access to the tightest possible spreads. They can also benefit greatly from having trading commissions that are as low as possible, and very fast execution speeds. This is due to the fact that their trading strategy relies on these factors being in place.
This kind of low spread environment can create plenty of opportunities for scalping, though it is not without risks and disadvantages too.
You can find out much more about scalping here with our post on the best scalping forex brokers to help you get started.
Not every currency pair can have low spreads
Of course, we always want to have access to the lowest possible spreads. This is not always accessible with all forex currency pairs. Some will simply always have a higher spread than others. This is particularly true of the exotic and cross pairs. Major currency pairs like the EUR/USD will almost always have a lower spread. This stems from the fact it is one of the most traded in the world with a spread often starting from 0 pips. Other low spread pairs often include the USD/GBP, and USD/JPY.
Exotic currency pairs from developing nations such as the Turkish Lira, Indian Rupee, South African Rand, and more, will usually have higher spreads that can easily reach 10+ pips spread even in an ECN environment. This is often due to their volatility or simply lower liquidity.
How to look for a broker with tight forex spreads
If you are trying to find a top broker with the best spreads you should definitely start here with our top ten lowest spread forex brokers.
Typically, you will find that ECN forex brokers are the type that often offers the lowest possible spreads, so this is another great place to start looking.
Low spread in forex: FAQ
How do I get low spreads?
The very first, and most advisable thing to do, is search for a forex broker offering low spreads. This will typically be an ECN/STP broker in most cases. You can also check out their website for more information. You should also focus on trading major forex pairs if you really want the lowest possible spread.
Which is the lowest spread possible to find?
The lowest spread you can find is 0 pips. Sometimes you will also find negative spreads, but they are not common. You will also find spreads that can be very close to 0 pips. It is important though to pay attention and ensure you also factor in the cost of any commission you have to pay.