Low Spreads
Start Trading with an ECN Broker

Types of Forex Spreads

A forex spread is the difference between the buy and sell prices of a currency pair in the market. It is usually expressed as the number of pips between the two prices. It is calculated by subtracting the bid price from the ask price. The difference between the two prices is referred to as a “spread”.

Keynote:
Two types of forex spreads: fixed spreads and variable spreads.
There are three main types of options spread strategy: vertical, horizontal and diagonal.

There are two types of forex spreads fixed spreads and variable spreads.

There are two types of forex spreads fixed spreads and variable spreads. Fixed spreads are the most common type of spread and are generally fixed at a certain level at all times. Variable spreads are always changing, depending on the market conditions.

Fixed Spreads

Fixed spreads usually remain the same regardless of market conditions. They are predetermined by brokers, and the size of the spread is usually expressed in pips. These spreads can be useful for traders who want to enter and exit a trade quickly, as they always know what the spread will be.

Variable Spreads

Variable spreads are much more volatile, and they adjust to the current market conditions. These spreads can be lower or higher than the fixed spreads depending on the liquidity in the market. The size of the variable spread will also depend on the currency pair you are trading, as well as the time of day and the prevailing market conditions.

It is important for traders to understand the different types of spreads, as this will enable them to make more informed decisions about their trades. Fixed spreads are usually more suitable for novice traders, as they can provide a consistent level of risk. Variable spreads, however, can be potentially more profitable if the trader is able to take advantage of market conditions.

Fixed Spreads

Fixed spreads are an important element of forex trading that determine the cost of each individual trade. A fixed spread is the difference between the ask price and the bid price in a particular currency pair. It is a predetermined value that is established by the forex broker, and it remains the same regardless of market conditions. The most common fixed spread is three pips, although this depends on the broker.

When trading forex, the spread is the difference in the values of two currencies that must be accounted for. For example, if the Euro/U.S. Dollar (EUR/USD) rate is 1.50, then the bid price is 1.4444 and the ask price is 1.4446, meaning that the spread is 0.0002 or 2 pips. That means a trader must pay this 2 pip spread to enter a trades and must then see a profit of 2 pips in order to come out ahead on the trade.

Forex Spreads explained

Spreads For traders that use a market maker

For traders that use a market maker, the spread is usually fixed and the broker will usually make a profit from the spread. This is because the spread and the amount of pip difference between the ask and bid prices is always the same, regardless of market conditions. This means that, should the market be volatile, the spread doesn’t change. This is beneficial for traders using a market maker, as they always know how much they need to make in order to break even on a particular trade.

However, this kind of fixed spread also limits a trader’s ability to take advantage of more favorable market conditions. If the market is particularly volatile, traders may want to benefit from a greater pip difference, but since the spread is fixed, it would be impossible to do so. Similarly, if the market is quiet, traders may find themselves at a disadvantage.

On the other hand, brokers that offer variable spreads do not charge the same amount of spread across the board. This means that, depending on market conditions, traders may benefit from larger or smaller spreads, depending on the situation. This can be advantageous for traders, as they can benefit from larger spreads in particularly volatile markets and smaller spreads in more stable markets.

Variable Spreads

Variable spreads are widely used in the forex trading market and are an important part of the trading process. For traders, it is essential to be aware of variable spreads and how they can influence your trading strategy.

Recommended Brokers

Take the guesswork out of choosing a Forex broker by selecting one of our recommended options. I have thoroughly vetted each broker to ensure they meet the highest standards of security, reliability, and user experience. Don’t miss out on the opportunity to trade with confidence and success.

Broker

Regulators

Max. Leverage

Spreads

Trading Acc.

Instruments

Connect

FP Markets 

ASIC, CySEC

Up to 1:500*

From 0.0 pips

Broker Type:
STP | ECN | DMA 2 Accounts

Forex, Indices,
Commodities, 
Metals, Energies,
Shares, ETFs Crypto, Bonds

Eightcap

ASIC, VFSC

 Up to 1:500 

From 0.0 pips

Broker Type:
STP | ECN
 2 Accounts

Forex, Indices,
Commodities, 
Shares, Crypto

IC Markets

AFSL, ASIC, CySEC, FSA

Up to 1:500

From 0 pips

Broker Type:
ECN
6 Accounts

Forex, Indices,
Commodities, 
Metals, Energies,
Shares, Crypto

Axi 

ASIC, FCA, DFSA, FSC

Up to 1:500

From 0 - 0.4 pips

Broker Type:
STP | ECN
 3 Accounts

Forex, Indices,
Commodities, 
Metals, Energies,
Shares, Crypto

InstaForex

BVI FSC

Up to 1:1000

From 0 pips

Broker Type:
MM | Binary
 6 Accounts

Forex, Indices,
Commodities,
Metals, Energies, Shares, Crypto

NordFX

VFSC

Up to 1:1000

Floating spread from 0.9 pips

Broker Type:
STP | ECN
4 Accounts

Forex, Indices,
Commodities, 
Shares, Crypto

FXOpen 

ASIC, FCA

Up to 1:500*

Floating spread from 0 pips

Broker Type:
STP | ECN
 6 Accounts

Forex, Indices,
Commodities, 

Metals, Energies,

Shares, Crypto

Vantagemarkets

CIMA, ASIC, FCA

Up to 1:500*

From 0.4 pips

Broker Type:
STP | ECN
4 Accounts

Forex, Indices,
Commodities, 

Metals, Energies,

Shares, Crypto

RoboForex

FSC

Up to 1:2000

From 0.0 pips

Broker Type:
MM | STP | ECN
5 Accounts

Forex, Indices,
Commodities, 
Metals, Energies,
ETFs, Shares, Crypto

Exness

FCA, CySEC, FSA, CBCS, FSC, FSCA

Up to 1:3000

From 0.4 pip

Broker Type:
STP | ECN
 6 Accounts

Forex, Indices,
Commodities, 
Metals, Energies,
Shares, Crypto

FBS

CySEC, FSC, FSCA, ASIC

Up to 1:3000 

From 1 pip

Broker Type:
STP | ECN
 6 Accounts

Forex, Indices,
Commodities, 
Metals, Energies,
Shares, Crypto

Blackbull
Markets

FMA, FSA

Up to 1:500

From 0.0 pips

Broker Type:
STP | ECN

6 Accounts

Forex, Indices,
Commodities, 
Metals, Energies,
Shares, Crypto

  Review  


Blueberry Markets

ASIC, SCB

Up to 1:500

From 0.0 pips

Broker Type:
ECN | MM
2 Accounts 

Forex, Indices,
Commodities,
Shares, Crypto

  Review  


VALUTRADES

FCA, VFSC
CIMA, ASIC

Up to 1:500

From 0.0 pips

Broker Type:
ECN | MM
4 Accounts 

Forex, Indices,
Commodities,
Shares, Crypto

  Review  


FXGT

SFSA, FSCA, CySec*

Up to 1:500

From 0.0 pips

Broker Type:
STP | ECN

6 Accounts

Forex, Indices,
Commodities,
Shares, Crypto

  Review  


FXView

CySEC, FSCA

Up to 1:500

From 0.0 pips

Broker Type:
ECN

1 Account

Forex, Indices,
Commodities,
Shares, Crypto

  Review  


Understand variable spreads

To understand variable spreads, it helps to look at the example of a range bound currency pair. A range bound pair is one that is expected to trade within a certain range and can vary drastically in terms of price. For example, the EURUSD pair can have a daily range of 1.00 – 1.03, or at times even higher.

The variable spread of a pair is the difference between the bid and ask prices of the currency pair. It is generally the difference between the opening and closing prices of the currency pair. For example, if the EURUSD opens at 1.00 and closes at 1.03, the variable spread is 3 pips.

Variable spreads can be caused by a variety of factors, including market liquidity and news events. When there is increased buying pressure, market liquidity tends to decrease, which causes currency prices to fluctuate more widely.

Additionally, news events such as central bank announcements or political instability can cause the variable spread to increase significantly.

Variable spreads can also be influenced by the trading volume of a currency pair. High trading volume can cause variable spreads to decrease, as the number of traders trading the currency pair increases.

Similarly, low trading volume can cause variable spreads to increase, as the lack of liquidity can cause wide price fluctuations.

Variable spreads can be used to the advantage of traders. By taking into account the current spread of a currency pair, traders can decide when to enter and exit a position.

Furthermore, traders may opt to trade currency pairs with low variable spreads, such as the USDJPY, in order to reduce their trading costs.

Overall, variable spreads are an important part of the forex trading process, and it is important for traders to understand the factors that can influence the spread of a currency pair.

By monitoring the variable spreads of a currency pair and taking into account the factors that can influence it, traders can use it to their advantage and maximize their trading profits.

Commission-Based Spreads

Commission-based spreads are one of the two types of forex spreads. A forex spread is the difference between the prices of two currencies that are traded on the forex market, and it is typically expressed in pips. The other type of spread is known as a variable spread.

With commission-based spreads, a commission fee is charged by the broker for each trade. This fee is usually charged on a per-contract basis and is usually calculated as a percentage of the value of the trade. This fee is charged in addition to the spread of the trade.

The commission fee varies from broker to broker, but the overall cost of commission-based spreads tends to be lower than for variable spreads. Another advantage of commission-based spreads is that they can be used to keep transaction costs down.

For example, if a trader wants to buy/sell a large amount of currency, a commission-based spread can be used to lower the cost of the transaction. This is because the fees associated with a large trade can be spread out over many transactions using a commission-based spread.

Commission-based spreads are one of two types of forex spreads and are typically cheaper than variable spreads. Commission-based spreads can also be used to keep transaction costs down by spreading the fees associated with large trades over several transactions.

What are the 3 Types of Spreads?

There are three main types of options spread strategy: vertical, horizontal and diagonal.
A vertical spread strategy – sometimes known as a money spread – uses two options with identical expiry dates but different strike prices.

The Vertical Spread Strategy

A vertical spread strategy is a options trading strategy that involves buying and selling options of the same underlying asset but with different strike prices and expiration dates. The options are usually bought and sold in the same quantity and can be either call options or put options. The goal of the strategy is to profit from the difference in the price of the two options.

This strategy is typically used by intermediate to advanced traders who have a moderate to high level of risk tolerance.

Vertical spreads are typically used when the trader has a moderate to high level of confidence in the direction of the underlying asset’s price movement, but is less certain about the magnitude of that movement or the timing of it. It can also be used when the trader wants to limit his risk and maximize his potential profit.

The Horizontal Spread Strategy

A horizontal spread strategy, also known as a calendar spread or time spread, is a options trading strategy that involves buying and selling options of the same underlying asset, same strike price but with different expiration dates. The options are usually bought and sold in the same quantity and can be either call options or put options. The goal of the strategy is to profit from the difference in the time decay of the two options.

This strategy is typically used by intermediate to advanced traders who have a moderate to high level of risk tolerance.

Horizontal spreads are typically used when the trader expects a minimal price change in the underlying asset but wants to take advantage of the difference in time decay between the options. It can also be used to generate income from the options premium, to hedge an existing position or to speculate on the volatility of the underlying asset.

Diagonal Spread Strategy

A diagonal spread strategy is a options trading strategy that involves buying a longer-term option and selling a shorter-term option of the same underlying asset but with different strike prices. The options can be either call options or put options. The goal of the strategy is to profit from the difference in the price and time decay of the two options.

This strategy is typically used by intermediate to advanced traders who have a moderate to high level of risk tolerance.

Diagonal spreads are typically used when the trader expects a moderate price change in the underlying asset but is uncertain about the direction of that change. It can also be used to generate income from the options premium, to hedge an existing position or to speculate on the volatility of the underlying asset. Additionally, it allows the trader to take advantage of the time decay of the short-term option, while also giving the flexibility to adjust the strike price of the long-term option.

Recommended Brokers

Take the guesswork out of choosing a Forex broker by selecting one of our recommended options. I have thoroughly vetted each broker to ensure they meet the highest standards of security, reliability, and user experience. Don’t miss out on the opportunity to trade with confidence and success.
Choose one of our recommended Forex brokers today!

FP Markets

Since 2005

Offices:

Australia, Cyprus, South Africa

FP Markets

Minimum Deposit:50 USD 
Account currency: USD, EUR, GBP
Leverage:1:500*
Accounts:Raw, Standard, Pro, IRESS account
Instruments Offered: Forex, Indices, Commodities, Metals, Energies, Shares, ETFs Crypto, Bonds
Trading Platform:MT4, MT5, cTrader, WebTrader, Mobile App,  Superior VPS solutions
Regulation:ASIC, CySEC, FSCA
Spreads:Raw:  from 0.0 pips,
Standard: from 1.0 pip   
Visit BrokerBroker Review

FXOpen

Since: 2005

Offices:

UK, Australia, Cyprus, Nevis 

  FXOpen

Minimum Deposit:$15
Account currency:GBP, USD, EUR
Leverage:Up to 1:500
Accounts:Micro, STP, ECN, Crypto, Demo
Instruments Offered:Forex, Indices, Commodities, Metals, Energies, Shares, Cryptocurrencies
Trading Platform: MT4,   MT5*, TickTrader*  Free Forex VPS Hosting
Regulation:ASIC, FCA
SpreadsMicro: Floating Spread
STP: Tight Spreads
ECN: Raw Spreads
Crypto: Tight Spreads
Visit BrokerBroker Review

InstaForex

Since: 2007

Offices:

 British Virgin Isles

InstaForex

Minimum Deposit:From $1
Account currency:EUR, USD
Leverage:From 1:1 up to 1:1000
Accounts:Demo, Insta.Standard, Insta.Eurica, Cent.Standard, Cent.Eurica, PAMM
Instruments Offered:
Forex, Indices, Futures, Options, Commodities, Metals, Energies, Shares, Cryptocurrencies
Trading Platform:МТ4, МТ5, InstaTrader, WebTrader, Multiterminal, Mobile Trading, VPS hosting
Regulation:BVI FSC 
Spreads:0 pips: Insta.Eurica and Cent.Eurica;
3–7 pips: Insta.Standard and Cent.Standard
Visit BrokerBroker Review

EightCap

Since: 2009

Offices:

Australia, Vanuatu

EIGHTCAP

Minimum Deposit:$100
Account currency:AUD, USD, GBP, NZD, SGD, EUR
Leverage:1:30 for Australian clients
1:500 for Non-AU clients
Accounts:Standard Account, Raw Account
Instruments Offered:
Forex, Indices, Commodities, Metals, Energies, Shares, Cryptocurrencies
Trading Platform:MT4, MT5, Mobile, VPS hosting
Regulation:ASIC, VFSC
Spreads:From 0.0 pips
Visit BrokerBroker Review

IC Markets

Since: 2007

Offices:

Australia, Cyprus, Seychelles

IC MARKETS

Minimum Deposit:200 US dollars
Account currency:USD, AUD, GBP, CHF, JPY, NZD, SGD, CAD, HKD, BTC
Leverage:From 1:1 to 1:500
Accounts:Demo, Raw Spread, cTrader, Standard, Islamic, PAMM
Instruments Offered:Forex, Indices, Commodities, Metals, Energies, Shares, Bonds Cryptocurrencies
Trading Platform:cTrader, MT4, MT5, WebTrader, VPS hosting
Regulation:AFSL, ASIC, CySEC, FSA
SpreadsFrom 0
Visit BrokerBroker Review

RoboForex

Since: 2009

Offices:

Belize

RoboForex

Minimum Deposit:$10
Account currency:USD, EUR, and GOLD
Leverage:1:2000 
Accounts:ECN, Pro, Prime, ProCent, R Stocks Trader
Instruments Offered:Forex, Indices, Commodities, Metals, Energies, Shares, Cryptocurrencies, Futures
Trading Platform:MT4, MT5, WebTrader, Free VPS-Server, R StocksTrader
Regulation:FSC 
Spreads:From 0.0 pips
Visit BrokerBroker Review

Questions about Spreads

How does spread affect price?

A bid-ask spread is the difference between the asking price and the bid price of a securities or other asset on financial markets. The bid-ask spread is the difference between the greatest price a buyer is willing to pay (the ask price) and the lowest amount a seller is willing to accept (the ask price) (the ask price).

What do big spreads indicate?

Bid-ask spreads that are narrower indicate better liquidity, whereas bid-ask spreads that are broader are indicative of less liquid or volatile stocks. Wide bid-ask spreads might make it more difficult to enter and exit a position at a reasonable price.

How do brokers make money from spreads?

The forex broker will charge a commission per trade or a spread in exchange for executing buy or sell orders. This is how forex brokers generate profits. Spread refers to the difference between the bid and ask prices for a deal.

Conclusion

Fixed spreads provide traders with a fixed cost to enter and exit their trades, while variable spreads offer more flexibility in terms of cost but are more variable.

Commission-based spreads offer the greatest flexibility and cost the least, but they also require a trading commission.

As with any other component of forex trading, it is important to take the time to understand how forex spreads work so that traders can make informed decisions when executing their trades.