I have a live account with a broker who offered 2 pip spread. I am a newbie with an account balance of $1000. Recently they changed the pips to 3 and said it is a new system of target fixed spread.
I am not sure I understand that correctly and also if I should change the broker to look for low spreads. Can somebody please help?
Thanks.
Well if you want the truth:
This ‘Target Spread’ bullsh*t is nothing other than a marketing tool!!! It allows the broker to ‘legitimately’ advertise OH SO LOW spreads (those OH SO LOW spreads being the ‘Target Spread’). Meanwhile, and ‘back at the ranch’, you’re effectively trading with a variable spread broker ‘no matter which way you slice it’. The caveat: at a broker of ill-repute that variable spread is a ‘favoured tool’ to take out your stops. Why??? Because at most brokers: the price bars are constructed using the BID PRICES and the ASK PRICES are never shown. Variable spreads are ‘varied’ by varying the ASK PRICE (go figure) not the BID PRICE. So on your chart: you’ll never be able to see what the ASK PRICE was that had been reached or how wide the spread had been widened at any particular point in time.
And before anybody tells me I’m talking nonsense (insofar as a trading platform like MetaTrader is concerned): I’m talking about the ACTUAL CHART and the ACTUAL BARS and NOT the fact that you can turn on or turn off the display of the ASK PRICE line. While that does show you the current ASK PRICE the HISTORY of the ASK PRICE is not recorded anywhere so at no given point in time are you able to see how wide the spread WAS. You’d only be able to SEE the spread widening in real-time by watching the ASK PRICE line in MetaTrader WHILE it was happening and if you were ‘glued’ to the chart.
You’ll find many threads / posts around here where the question is asked ‘why was my position stopped out when price, according to the chart, was nowhere near the price of my stop loss order’. Well ‘there’s your problem’ (Mythbusters)!!! Call the broker and ask them them WHY your position was stopped out when price, according to the chart, was nowhere near the price of your stop loss order??? The answer will always be the same: ‘the spread widened sir’. And the worst part: you have no way of knowing why, or by how much, or when it was widened. All you know is that it was widened enough to take out your stop.
My advice to you and anybody else: find a fixed spread broker. While the spreads are usually slightly higher: believe me the cost of those slightly higher spreads are FAR less than what the cost will be of having trade after trade after trade stopped out because ‘the spread widened sir’!!!
Regards,
Dale.
I obviously don’t write with the same passion as Dale, but as an addendum, pick your broker(s) carefully. Do due diligence because this is one of the most important components you need to be profitable. If you can’t trust your broker then you’ll be questioning every trade. Use more than one broker as a matter of having a contigency plan …
LOL!!!
It’s not ‘passion’. I just have problem expressing myself in fewer words and lack the ability to ‘get to the poiint’!!! LOL!!! Although that being said I DO TRY to be ‘crystal clear’ in my posts (and that’s as a direct result of getting ‘one-liners’ as answers when I first started trading and posting questions and those ‘one-liners’ I either had to ‘decipher’ or make a total fool of myself and ask the same question again)!!! LOL!!!
But I’ll tell you this much (and this may sound odd coming from me): but in this business I’m starting to believe that ALL brokers are out to ‘fleece’ you. It’s just a question of how far they’re prepared to go to accomplish this. I’ve spent most of the day just out of curiosity looking through some broker reviews on Forex Peace Army (I’ve never really looked at other broker reviews over there other than Deltastock’s and THAT’S only been to address ‘issues’ that have arisen from time to time) and I’ll tell you: how ANYONE is expected to choose a broker is beyond me. In my honest opinion: I think it boils down to simply getting ‘lucky’ and ‘choosing the best of a bad bunch’ is all. And what REALLY GRATES me is this: why is ‘enough never enough’??? Why is it not good enough for a broker to simply make money on the spreads and commissions and leave it at that??? There are thousands if not millions of traders worldwide that would generate WAY enough income for all the brokers in the world just through the spreads and commissions alone. But NO!!! That’s not good enough. It’s 99.999% (well 95% being the ‘generally accepted failure rate’) of the ‘pie’ that they want. There’s absolutely NO CONCEIVABLE reason for variable spreads. Not in my opinion anyway. And what’s become even more alarming (and which is further proof of my ‘hypothesis’): brokers that have always had fixed spreads (well during the six years that I’ve been at this ‘lark’) are changing to variable spreads ‘one by one by one’. And believe me when I say: it’s NOT to be kind to ‘Joe Trader’!!!
But all is not lost!!! I’m working on something. If it ‘pans out’ it’ll be ‘trading as it used to be’ i.e. trader against trader and no bullsh*t ‘this trick’ or ‘that excuse’ and full and total transparency. Wish me luck. You never know: you could be a benefactor!!! LOL!!!
Regards,
Dale.
Edit:
Come to think of it (and while checking for spelling and grammar errors) the above was INDEED written with ‘passion’!!!
I read somewhere, brokers with fixed spreads should be avoided. Is it for misleading people or what?
Some brokers provide historical data about when,why, and how much they widened the spread. That is not really an excuse but we know at least.
My broker has fixed spreads. They differ depending on the pair but most majors are 2-4 pips for the spread. They are always 2-4 pips no matter what. News events does not raise there spreads. Moments of really high volatility my spreads are still 2-4 pips depend on the pair. There have a list on there web site that tells you the spread on every pair and it is always the same. Thats a fixed spread. Now a fixed target spread I have to agree with Dale. Its nothing more than the spread they would offer you but are never going to.
Thanks to all of you. When they advertise 1pip & 2pip I assumed that it was a fixed spread. I check with their CSR and I was informed of the same! It might be time to change the broker.
Can somebody please suggest a fixed spread broker?
Hi,
I’m not quite sure why one would give such advice. And whether or not it’s misleading I couldn’t say really. In all probability (taking a ‘rough guess’ here) ‘warnings’ were published by variable spread brokers!!! LOL!!!
I personally don’t know of any brokers that provide historical data about when, why, and by how much they widened the spread. I’m not doubting what you’re saying. I’m just saying that I’ve never come across any information like that ever so if you can give me an example I’d appreciate it. Remember one thing though: that data, for it to mean anything, has to be tick data and NOT what the ASK PRICE was at the time of the closing of the price bar. The spread could be widened for one single tick and that would be enough to take out your stop.
The closest I’ve seen to SOME transparency on the subject of variable spreads is at IBFX. I don’t know if the ‘table’ or the information is still displayed on their website but you can get (used to be able to get???) a report of the AVERAGE spread on the pairs that they offer for any given user defined period. That’s the closest you’re going to come to getting a ‘rough average’ or a ‘median’ spread size for a given period of time.
The problem with variable spreads is this:
Most all trading systems (that I know of anyway) will (should) give you an exact entry price and and exact exit price and an exact stop loss price. If you’re short and let’s say that the trading system tells you to place your stop loss order at X price. FIRST (and working off of a bid price only chart) you would have to add the spread to the price of your stop los order otherwise you risk your stop loss order being executed prematurely DUE to NOT compensating for the spread. With variable spreads: you only know at that single moment in time what the CURRENT variable spread is and it’s changing on a continuous basis. So not only is your placement of your stop loss order going to be at a price based on what the CURRENT variable spread is: in addition to this you also run the risk of not only the spread widening to catch your stop los order but ALSO slippage. In other words and according to your trading system: you’ve done everything correctly i.e. calculated your 2% risk, placed your entry, exit, and stop loss order, but the ‘goal posts’ change from the moment you have placed those orders. So what SHOULD have been only a 2% loss could very well end up being a 5% loss if the spread was widened ‘violently’ due to, let’s say, a news release, or something like that (or simply a ‘Bucketshop Broker’ messing with you). Now that’s not to say that a stop loss order placed at a FIXED spread broker cannot be slipped under the same conditions i.e. it can. But the ‘freedom’ or ‘latitude’ that a variable spread affords the broker is TOTALLY out of your control and that doesn’t make ME feel very comfortable anyway.
The ‘long and short of it’ (no pun intended) is that trading with variable spreads you’re effectively giving the broker carte blanche over what price they execute your ASK/BUY order at.
Regards,
Dale.
Hello bobmaninc.
You’re ‘right on the button’ (as I said: I no good with short and precise explanations but you’ve summed it up TOTALLY and CORRECTLY)!!! LOL!!!
As I noted in my previous reply: fixed spreads are no guarantee that your stop orders are not going to be slipped but I’m willing to bet that in the case of fixed spreads they’ll be slipped a WHOLE LOT LESS!!! LOL!!!
Regards,
Dale.
Hi rrmss.
Only thing I can think of is to ask bobmanic if he would mind sharing. Deltastock has fixed spreads but only their proprietary trading platform ‘Delta Trading’ and, unfortunately, it doesn’t seem to seem to ‘capture the heart, mind, and soul’ as it has done me. They offer MetaTrader 4 (Spot FOREX only) but again: variable spreads. So not even I can help you on this one.
Regards,
Dale.
FXSolutions has fixed spreads - high compared to the Cheap Charlies, but you get what you pay for. They claim to be a fully automated trading platform and have great liquidity. But they have 4 digit pricing and their charts are based on New York time not European which is my preference. I don’t know of any other fixed spread outfit - my other broker FXDD went to variable spreads this summer.
Edit: I forgot to mention that FXSolutions is fully NFA compliant which means a maximum leverage of 50:1 and FIFO. Some find these restrictions to be onerous, but they don’t bother me.
I have used both fixed and variable spread brokers. Most of the time the variable spread brokers spread is lower. The catch is when its not a spread jump around news on some brokers can be very big. Many people recommend a real ECN broker. I dont think a real ECN can have fixed spreads. I might be wrong on this but I think that on the interbank market prices are quoted with a bid and ask and they vary. I really dont think that just because a broker is a market maker that is enough to put them in the bad category. My advise is not to be afraid to try a few brokers with live accounts. It will cost you a little in transaction fees. Its the only way to see how the trade execution is and how the deposit and withdraw process works. Dont be shy about contacting customer service when you are shopping around. Good customer service is important to me.
Codes got it. I use fxsolutions. HOwever I was thinking about this and I think I might know what a fixed target spread is. It is what the brokers target spread is that they pay at a maximum. Does not mean thats what they are going to give you. Unless of course they are getting paid another way lol.
I did this and dont recommend it to any one. Fixed spreads are good if you have a mini or micro account but once your with the big boys and you start making 10-20 pips a trade with big lots size’s they will stop your account and or they’ll tell you to start with a non fixed spread account.
All in all just go with non fixed spread account and you wont have to worry about anything like this IMHO.
You maybe right I dont have a standard account but if your broker is half way decent they will treat all accounts the same. If they are decent (and there is a very fine line there) they will make as much from the micro accounts as they do a few large accounts. Why you may ask? simple more people have them. The more that have them it may be smaller chunks of change but they add up. To be totally honest even if I had the funds to run a standard account I would not. I would do a mini or find a better broker. Why you might ask? it lets be better leverage myself. Or position myself however you want to look at it. I have already stated in another thread somewhere on here about brokers that treat there clients differently. It was on a MM or ecn thread.
To sh1rk I am going to be honest here to I have not seen many brokers really truly beat 2 pips for EUR/USD consistently. Sure every so often yeah sure great. You will not see me close my account for that anytime soon. Oanda I hear can do it. But I have had a few demos with them and never really seen it on there. I could be wrong I didnt like Oanda so did not spend much time there. FXCM on here I tried there demo and they didnt even come close. If you cant beat my brokers spread even on demo. I am pretty sure you surely will not on a live account. I dont have much fact to back that just what I seen and my common knowledge of how business is done. I dont care if you are a fx broker or an ice cream man. It all about your bottom line. Draw people in and gouge them once you have there money. Now with that said I am still thinking about opening an account with FXCM even though there spreads are higher due to the fact they offer weekly and monthly pivots that fxsol does not. Also they offer your funds being sent back to the same card that you opened an account with. Thats good work when I dont have to wait even though I dont take funds out to often. But I am a sper of the moment type of guy I plan to take my kid to disney world on a monday and plan to go on a friday and thats why I trade right now is stuff like that. Like codes said you pay for what you get I make enough to pay for higher spreads.
I will try to drop brokers here as that was not the point of this thread but it really is. IMHO a true fixed variable spread lets just say is 2 pips for EUR/USD then the spread should never ever go above 2 pips and should be lower. However this is the real world and that dont happen (although I have herd Oanda is good about that). In the real world it is and will always be in the guys taking your moneys best interest. Nothing more nothing less end of story. The reason for this is there are to many of us willing to pay the price and if you dont want to pay it (good for you my applause) there will be someone else to fill you shoes.
Ok I am done with my rant now you all have fun. I just hope someone learned a little something about spreads and business and how it works. At the end of the day its supply and demand and oh wait whats forex pretty much based of off. Oh my who would have thunk it I just might know something.
good post and I think we agree about picking a broker. Spreads are only one of the things you need to look at.
To the OP I have no idea what target spreads are. Many new traders will pick a broker based on spread alone. With that in mind the claims about our low spreads and any manner of gimmick language can be found on almost all broker sites. Read the fine print, open a live account to see what the spreads really are over a period of time its the only way to be sure.
Good morning everyone.
I must say that it’s a pleasure to wake up and read a REAL serious thread where gentleman and fellow traders are interacting with each other and trying to learn from each as opposed to the recent spate of ‘trolls’ and ‘flaming’ threads (have you noticed this: it seems to by cyclical i.e. we go through ‘normal’ periods and periods of ‘insanity’. It’s just like the markets I guess)!!! LOL!!!
I’ve got some more input and would like to address some issues raised or comment on some of the wonderful posts that have been posted overnight (but I’m not going to ‘Reply With Quote’ because that would make THIS post EVEN LONGER than my ‘usual)’!!! LOL!!!
[B]CodeMeister:
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That is great information about FXSolutions. I honestly don’t think that any Spot FOREX Trader could want for more i.e. fixed spreads, four digit pricing (none of this fractional pip bullsh*t which is just ANOTHER ‘fleecing tool’ but that probably a whole new topic), Charts based on New York time (which I agree is ‘the ultimate’). It’s a pity I don’t trade Spot FOREX anymore because I’d probably be right there with you (if for no other reason than the New York time based charts)!!! LOL!!!
[B]Shr1k:
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Let me begin with my saying this (and this applies to me too i.e. it’s not directed at you). I myself don’t know the reason for variable spreads but I do suspect that you’re right i.e. the banks have a bid and and ask price (and it’s the same with equity futures and commodities). Perhaps somebody who knows the more technical details for having variable spreads could chime in here. I can understand the ‘logic’ of spreads (be they fixed or variable). I’m sure we all can. I’m buying ‘something’ at ‘X’ and I’m trying to sell it to you at ‘Y’ and the difference is the spread (and theoretically my profit). So maybe the banks ‘negotiate’ or ‘bargain’ and that’s the reason for THEIR variable spreads. Although that doesn’t quite explain it does it. Because theoretically I’m buying at PRICE ‘X’ and trying to sell it to you at PRICE ‘Y’ and THAT should be my profit (assuming a move in actual PRICE). I don’t even know where to start looking for an explanation for this so like I said: anybody that ‘knows their oats’ please feel free to explain this to us (rhodytrader maybe although I don’t see him around here too much no more. Clint??? Master Tang??? A Bank Manager??? Anyone??? Someone from the SEC???)!!! LOL!!! But I DO have to ask myself: WHY, ‘in the beginning’, (and I’m only talking about a relatively short period in time here i.e. six years) were all brokers not simply variable spread brokers from the start??? When I first started trading (six years ago i.e. that’s the ‘relatively short period in time’ to which I was referring) I don’t recall seeing the words ‘variable spreads’ too often (if ever at the time). Every broker I looked at offered fixed spreads. So what’s changed (and changing fast) and why is the question. What I’m saying here is that we’re looking at a situation here where I don’t think (well speaking for myself here anyway) that we know the ‘inner workings of this’ in much the same way that most new traders don’t understand the different order types and how they are actually executed in the market.
But one thing I DO know is this: variable spreads I do emphatically DO NOT think are in the trader’s favour. A fine example: Deltastock used to offer all their CFDs on Indices with fixed spreads which made me real happy. I knew exactly where to place my BUY/ASK orders plus the usual ‘a couple of ticks’ about the high of a bar and ‘that was that’. Now that’s changed just recently. I’ve sat and watched those spreads carefully for the past two months or so. The WORST I’ve seen: the fixed spread on the Swiss Market Index USED to be 3 points. Since variable spreads have been introduced: I’ve seen the variable spread on the Swiss Market Index ‘hover’ around 9 points on occasion. VERY rarely have I seen it at 3 points since the variable spreads were introduced. And remember: for each unit (CFD) 1 point = €1. So trade 10 units (CFDs), with a variable spread of 9 points, and that’s €90 ‘gone’ from the moment you open your position. That’s not ‘small change’. Not for your ‘Average Joe Trader’ like me anyway. One other question comes to mind: I watch Bloomberg TV all day every day (need to get my ‘daily fill’ of ‘Madge’ i.e. Margarat Brennan). When they quote prices, whether it be FOREX or equity prices: there’s ONE price e.g. EUR/USD is AT 1.xxxx or the Dow is AT 11 013.28. Perhaps there’s a ‘starter’ for me i.e. ask Bloomberg TV what those prices are based on i.e are they Bid, Ask, or Middle prices that they quote.
What I’ve also seen is a ‘trade off’ with variable spread brokers (no names mentioned here). ‘Trade EUR/USD with a spread as low as 0.1 pip BUT there is then a commission payable on the trade’!!! And remember that commission is charged when you OPEN the position AND when you close the position. I’ve never bothered to do the math but I’m willing to bet that the larger the trade size the larger the commissions payable will be and there will be no saving because of the 0.1 pip variable spread (and of course you ‘no matter which way you slice it’) the variable spread, as I noted yesterday, gives the broker ‘carte blanche’ at what price to execute any BUY/ASK order once you’re in a trade.
Market Makers: I agree and believe that you’re right i.e. true ECNs cannot have fixed spreads and variable spreads are NORMALLY lower (although as I’ve noted I think we’re lacking ‘detail’ here or lacking the ‘why’). In the case of the latter: as long as they (the variable spreads) REMAIN lower THROUGHOUT the trade then there would be no problem but I know that this doesn’t happen!!!
Regarding Market Makers: here’s a little information that may interest some (YES: it’s on my forums but you don’t have to be registered or logged in to read it unlike with the downloads). I agree with you that just because a broker is also a Market Maker doesn’t mean that they’re ‘dirty rotten scoundrels’ (and I’m not just saying that because of my ‘affiliation’ to Deltastock). But there are INDEED brokers who are also Market Makers who really ARE ‘dirty rotten scoundrels’. That’s why I posted on a thread the other day (or was it this one???): basically I think you eventually just get ‘lucky’ and find a broker that is ‘as honest as you’re going to get’ and simply ‘the best of a bad bunch’!!! LOL!!!
Technical Trading Systems at TechTraderCentral - What do you need???
Customer Service: always important. Although have you not noticed that with most all brokers their DEMO account customer service department is normally WAY more efficient and friendly than their LIVE account customer service department!!! LOL!!!
[B]bobmaninc:
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NOTHING TO ADD!!! LOL!!! Once again: you’re ‘on the button’ (with both posts)!!! LOL!!!
[B]dirtysnips[/B] (where on earth did you get THAT from)??? LOL!!!
Even I wasn’t aware that that type of thing happens. Some more ‘homework’ for me I think.
My summation at this point though (lack of intricate knowledge aside): if I had the choice of trading with a fixed spread broker or a variable spread broker then a fixed spread broker it would be. If NOTHING else it eliminates BUT ONLY ONE more ‘unknown’ and ‘uncontrollable’ aspect (of many) that can be used against the trader.
Regards.
Dale.
On this topic, I’ve asked this question before on another post but didn’t get any concrete answers back: how do you know if a broker is a true ECN, MM or other? Sure you can ask them and read their terms and conditions but there doesn’t seem to be a generic symbol (eg if you are a vegetarian, you can buy food in the UK labelled with a V symbol) … any ideas?
My thought on this mrchilled is there is no true ecn broker offering less than a standard. Reason being is simple the forex mart is dealt in lots not mini lot and not micro lots but a standard lot. So if you are buying mini lots your broker cant just enter you into the market. Instead he has to pile up orders to fill a standard lot. With that said this just made him a market maker. Like dale stated already not all market makers are bad but not all are good either. It will be in there terms and conditions on how they process transactions but you have to kind of know how to read between the lines. It is still my honest opinion that unless you have a standard account you dont have a true ECN broker it is just not possible. That being said a True (and I mean true not just claimed to be) ECN broker will not accept mini or micro accounts. But I have no fact just my belief.
Hi bobmaninc,
I wanted to add to your post because we offer No Dealing Desk (NDD) execution with all micro and standard accounts. Every order is immediately off-set with one of multiple liquidity providers at prices available from those liquidity providers, and a pip mark-up is paid on the transaction.
When we first launched microlot accounts, they were setup on Dealing Desk execution because there weren’t enough banks willing to directly accept microlot orders. Things have changed since then and we transitioned all microlot accounts to NDD execution once enough price providers were willing to accept micro lot orders. The liquidity and number of price providers willing to accept microlot orders is now so high that standard accounts also have the flexibility to trade microlots for more precise money management (like you mentioned).
For US regulatory registration, there’s no separate license distinguishing a market maker or NDD/STP broker. Brokers can offer forex trading as long as they are registered with US regulators as an FCM or RFED. However, each broker registered in the United States is required to explain their execution method in the trading agreement you sign when opening an account.
If anyone wants a run down of the differences between No Dealing Desk execution vs. Dealing Desk execution, you can find more information in the No Dealing Desk Q&A thread I have setup on BabyPips here 301 Moved Permanently .