Best Low Spread Forex Brokers

What are forex spreads?

Spreads are used in forex trading and investing to cover the difference between bid and ask prices on individual transactions.

The wider the spread for you as the trader, the greater the margin for the broker. As a result, the spread is essentially a fee charged by forex brokers to cover the costs of their services, which mainly include pairing buyers and sellers, and enacting transactions.

Spread costs often vary between each currency pair, and depend on market volatility or liquidity at the time of the trade.

Spreads are abundantly common in the forex market and are especially relevant to trading CFDs, since traders often seek out more precise entry prices than regular investors.

The profitability of retail traders could be affected by spreads and the amount paid as a consequence of them – spreads normally form part of the overall costs of forex trading.

How are forex spreads calculated?

While the bid price represents the highest price the market maker is willing to pay for an asset, the ask price represents the opposite and measures the lowest price at which someone is willing to sell an asset.

So, if someone was to buy US dollars (USD) using Australian dollars (AUD), the broker would charge them the bid price of USD/AUD at the time the order was executed.

This is the same for selling USD for AUD – the bid price of the AUD/USD currency pair would be quoted as the price for each unit.

As a result, if the bid price of an asset was £1.05 with an ask price of £1, the spread is the difference between these two values – £0.05.

Normally, lower spreads are preferred by forex traders and investors as you pay less for each trade or transaction, reducing overall costs.

It’s important to remember that spreads can often be affected by market volatility or liquidity, during which the spread is likely to increase. This could make accurately trading the assets in question more difficult.

What is a low spread broker?

Spreads can often vary between different brokers by default, which could lead traders to consider some platforms as generally less expensive than others.

As a result, forex brokers compete by creating incentives for potential customers to use them over their competition. So, a low spread broker would be one that offers the lowest spreads between currency pairs.

How do low spread forex brokers work?

There are different ways that a broker could offer reduced spread costs to its customers and each may work slightly differently.

For example, if a low forex spread is advertised by a broker, there may be additional costs elsewhere to compensate for this such as commissions.

So, understanding the features and rules of these different examples could help to inform your decision of which platform to use.

Zero spread accounts

Some platforms offer accounts that pay no spread costs on the trades made within them, which could significantly reduce the overall fees inflicted on an active trader.

This is known as a “zero spread account”.

It could also make it easier to enter and exit trades without having to worry about, or factor into your trading strategy, the impact spreads may have on your profitability.

For some, zero spread trading could be an important step in streamlining your trading method while, for others, it may not be so useful.

Because of the absence of a spread, orders made with this account could be executed in much less time. This could benefit experienced scalp traders – those who aim to open and close successive positions in very small amounts of time – to execute orders with greater accuracy.

In addition to this, the process of calculating your own returns could be easier without the need to factor in varying spreads. This way, trading with zero spreads could help to organise your different costs.

Brokers usually charge a commission or account fee to compensate for the loss of spread costs paid. The rate at which commission is charged by a broker is likely to vary between each platform.

Fixed spread accounts

Fixed spread accounts give forex traders the opportunity to take trades with predetermined, set spreads.

In this case, your orders will be charged the same spread regardless of the market conditions.

This means you could avoid facing unexpected, high costs on spreads when trading in more volatile markets.

Fixed spreads also usually allow instant execution of orders, since part of the calculating process has been removed in determining your spread costs – your order is opened almost instantly.

In addition to this, it could add a degree of predictability when calculating trading costs and allow you to gain a clearer picture of your costs and profitability.

Some fixed spread accounts may not be the lowest spread forex brokers on offer, but the predictability it adds to your trading costs could have plenty of utility for a range of traders.

These accounts will also often come with fees or commissions to compensate the broker for the fixed spread costs.

Standard account vs raw spread account

Standard account

The “standard” variety of forex trading account is most often associated with beginners because of their traditional approach to trading.

Customers using this account are usually charged according to the spreads on the assets they trade, rather than commissions.

Standard accounts give you flexibility to trade how and when you want – the minimum deposit associated with these accounts is often fairly low, and can be done whenever you need. Leverage is typically customisable, too.

In exchange for these benefits, there may be higher initial costs with standard accounts than others.

Raw spread account

A raw spread occurs when the market presents the most favourable trading conditions.

In a raw spread account, you have direct access to the underlying asset while paying very little in spread costs, as the broker doesn’t take a markup on the spread.

Instead, your broker’s fees are collected through commissions taken for each trade you make. The basis on which they are charged may differ between brokers.

For example, some may take it at the opening of each individual trade, while others may charge it after a trade has been completed (once it’s closed).

Are low spreads important when trading forex?

Because a currency pair’s spread is a big contributing factor to the costs you face while trading and therefore ultimately your profits, your decision whether to trade them or not may come down to the size of the spread.

Normally, currencies in emerging markets have a greater spread than others which could lead to you avoiding trading them if spread costs are important to you and the way you trade.

As a result, trading across currencies with greater spreads could carry more risk than those with smaller spreads.

This is something you should address with reference to your own risk profile – calculating the cost of the spreads against prospective profits or losses can help you know how much added exposure you have in a trade or investment.

Using a low spread forex broker could help CFD traders reduce their costs, mainly because of the significant expense associated with making a high frequency of orders and trades that are each likely to incur spread costs.

Low spread forex brokers FAQs

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 65% and 82% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.