Looking For Small Spreads
Before you sign up and open a Forex account with a particular broker, note that the pros often say it’s important to find one that offers small spreads. Keep in mind that the spreads are what render profits for the Forex companies. The wide spreads lead to higher bid and ask prices for your trading. This means that your costs go up when you purchase or sell the currency pairs; and this makes it more difficult to realize gains, especially if scalping in silence.
As a currency trader, a half a pip may not sound like much; however, it can make a difference between making a profit and losing money when exiting a position.
If you sign up with a broker today, you may switch to another one offering lower spreads. However, it’s also vital to inquire whether the brokerage firm will provide you with good execution of your orders.
So if the platform shows that the EUR/USD offers a spread of only 3 pips but your order is filled at a different price, one that’s not advantageous for you, you’ll lose money. As you can see, the low spread makes no difference in this illustration because it means that the broker, who attracted you with narrow spreads, is indeed causing you losses with wide spreads, slippage and delay in execution.
It’s important to mention that there are brokers offering variable spreads; these depend on liquidity in the market. So don’t deplete your funds. Shop around.