Fixed vs. Variable Spreads in Forex

Forex traders that are just getting started in the currency markets will always have some initial questions that should be clarified before any real-money trades are placed.  One of these questions deals with forex spreads, and this is one of the most important elements that you will need to focus on is the spread cost that is associated with each market transaction.  In short, the spread refers to the different between what it would cost to buy a currency pair and what it would cost to sell that currency pair.  This is a cost that you will encounter on every trade no matter which currency pair you are using.

Broker Options

Of course, not all forex brokers offer the same trading arrangements and there are some additional factors that should be considered when selecting your best choices.  Specifically, this means that some brokers will offer variable spreads while other brokers offer fixed spreads.  Fixed spreads are always constant and will not change in cases where there are increases in market volatility.  Variable spreads tend to be best if you are implementing a long-term trading strategy and have no need to trade during periods of enhanced market volatility (ie. during the market or when major news events are released).  

In contrast, we have brokers that offer fixed spreads and these tend to be the best for those who are looking to operate in the opposite type of market scenario.  Fixed spreads do not change so they are generally views as best for those that trade during news events.  This is great because it means that you will incur added costs when major news releases are made public.  It is a good idea to find brokers that are stable.  In my own experience, one of the best choices is FiboGroup, which is a online forex broker that offers some of the most flexible scenarios for active trading styles.

In all, these are issues that must be dealt with when trading in the forex markets.  It is not enough to simply know what a spread cost is.  We must also have an understanding of the different types of spreads that are typically seen.  

 

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About the Author
Richard Cox is a university teacher in international trade and finance. Lessons in macroeconomics and price behavior in equity markets. Trade ideas are generally suggestive of time horizons of one to six months.

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