I haven’t even done a demo trade yet, and am breaking my head researching brokers. I plan to start with nanolots and scalp, and as I get good, increase lot size and time frame.
Based on the above, please advise:
Is it preferable for me to go with a broker that offers no or low transaction fees (e.g., $5 or $10 a contract), or one that offers low spread for low spread cost (which would also mean lower potential profit/loss)? Do some brokers charge both?
Would you advise fixed or variable spreads?
Obviously, I’m trying to get the best combo for low cost and high potential profit. Can you recommend a broker that meets this criteria?
I’m seeking informed comments, preferably seasoned by experience.
The answer usually depends on two things,
1- what kind of trading do you plan to do, short term scalps on 5-30 min charts or longer term swing trades on 4H to Day charts?
2-What is your total capital allocated for trading?
SPREADS
If you intend to scalp on short term charts, then spreads are important, you do not want big spreads, as it will destroy your performance, so it is best to find a low spread broker and choose the high trading hours, and select a low spread pair (Eur/$ or $/Yen) or index (Dax,S&P,Kospi).
COMMISSION/TRANSACTION COST
This really depends on your total assets under management (Capital allocated for trading)
Note that most transaction costs are not a % but a fixed number like $5 per lot or $20 per lot.
This means you have to translate this to a % in line with the lowest allowable trade you can make, and compare it with your total capital (how much is that in % of your total Cap)
For swing trades transaction costs are not so important if you focus on Day and week charts but can still be a significant amount in % of your trading capital if it is a small cap. (smaller than $100, your transaction cost of $2 per 0.1 lot = 2% of your capital…too much). i wont even talk about scalpers since they dont need an extra burden of transaction costs to their activity.
As for variable or fixed spreads, it depends on when is the time you can trade or you plan to trade. IF for example you have a day job and can only trade off peak hours it means you pay a larger spread than normal, so perhaps consider fixed spreads if it offers a better options, also it depends on which pair do you plant to trade, are you sticking with the main 8 pairs or you want exotics which have a large spread? in this case maybe a fixed spread will be better. Good luck!
The spread cost may seem too small compared to the profits one expects but spreads can add up very quickly. The more trades you conduct, the more the transaction costs mount up, and in the end, the difference in spread between brokers can make or break a system. A scalping system can be particularly sensitive to the spread, being only profitable if the spread is extremely low.
Mostly traders prefer to choose low spreads pair in trading than high spreads because it’s easier to manage profit with low spreads pair than high spreads. But beside spreads, traders need to consider its movement too because low spreads pair will be hard to gain profit too if its movement is not too good. Usually, scalpers prefer to trade with low spreads pair because they need to open and close position quickly so it’s easier to gain profit when they used low spreads pair.