Hello all on Newbie Island; my name is Johnathan and I am relatively new to ‘the Island’. I am wondering if anyone can help me out: I noticed there are 2 different kinds of ‘spreads’ out there in trading: fixed and changing. What’s the difference between fixed spreads and changing spreads - does it indicate something specific about the company?
Thanks!
John
Normally it’s a trade off, Variable Spreads + good execution Vs Fixed Spreads and Slippage
Changing spreads usually mean that if big news is coming out or trading volume is high, you are going to have to pay a lot more to place a trade. However, like he said, in the broker’s eyes you are paying for good execution.
I like to stick with fixed spreads, it just leaves less room for argument.
Most brokers will usually have variable (changing) spreads to take into account the news releases spreads and when the market goes illiquid, then they like to pass the spreads on to the retail traders.
Fixed spread brokers, usually have larger base spreads than the variable spread brokers, because they need to profit off the retail trader more often and to a larger extent as they lose money when the spreads shoot up during news times, and low liquidity.
This video explains how brokers can widen spreads and make their money in the forex market:
YouTube - Forex Trading - How Brokers Make Money
Hope it helps.
Thank you everyone for your guidance! It is overwhelming being new to forex; there is a seemingly endless wealth of information to learn and it is comforting to receive help from fellow traders! Thank you all for your help; futuresforex- great video!
Hello Dans,
I opened account with fxpro with fixed spreads, I am newbie too. I think for beginner are fixed spreads better.
FxPeter- welcome to the club! Great! I will definitely check it out!
Keep Trading
Well, fxopen has both, so take ur pick. Fixed spreads account and variable spreads/ecn account.
And welcome to the Island. It is indeed a very chirpy place!
Hi All! Hope I put this in the simplest terms:
Fixed price usually indicates that the broker is a market maker. The advantage is that you don’t have to worry about spreads getting wider during significant news or events. Disadvantage: trading through market maker is a non-objective trading. Plus, fixed price are usually wider than the market’s actual spreads. Changing spreads usually means that it is a broker who broadcasts the trades straight to the markets and guarantees objective trading. Those brokers are ECN & NDD brokers. Though it may exposes you to rare situations of spreads getting extremely widen , It allows you trading in market’s real prices.
Hope this helps!
Good Luck
i ahve been researching on this, and it seems that only Fxopen has both. Unless anyone knows of any other broker?
I’d be ‘slacking on the job’ if I didn’t tell you that Deltastock also has both fixed and variable spreads (ECN/STP and ‘all that jazz’).
It depends on how you trade and what you trade as to whether you use fixed spreads or variable spreads. I myself try as far as is humanly possible to trade with fixed spreads. If I am unable to do so (some instruments that I trade have fixed spreads and others have variable spreads) then I try to get, say, a 14-day EMA of the variable spread, and use that as a ‘fixed’ spread when placing my orders (or one could use the ‘maximum variable spread ever’ for a particular instrument but because of variable spreads widening sometimes by HUGE amounts due to news data releases the result may be practically unuseable).
I SHOULDN’T tell you this (given who I am) but IBFX has quite a ‘neat’ little ‘table’ on their website that displays the average variable spread for a user defineable period for any of the pairs that they offer (just don’t make the period for the calculation TOO long because you’ll wait for ages for the result)!!! LOL!!! I must admit though: it’s a bit of an ‘eye opener’. The last time I looked at it: the average variable spread (for whatever period I was ‘playing around with’) was way more than ‘the usual’ 2 pip fixed spread offered by most brokers for EUR/USD (as but one example).
There’s a thread somewhere around here started by me that is entitled something like ‘To include the spread or to not include the spread’ (something like that). While we all had our opinions and some disagreement on the subject I myself am still sure and convinced that when working off of a bid price only chart (such as MetaTrader’s charts) you HAVE to accomodate / compensate for the spread when placing ask/buy orders and using variable spreads makes this a little bit harder to achieve.
Regards,
Dale.
There is a neat tool in Forex Factory under the Market tab, scroll down to Broker Quotes and then tick Live. Pick from the list of brokers and the pair you are interested in.
Personally, as a newbie, fixed spreads are the way to start (that’s what I am on). As you progress, move to variable ones for better execution.