All You Need to Know About Zero Spread Brokers
With the increasing popularity of forex trading the number of forex brokers have also increased, which in turn has increased the competition between them. In order to win clients, brokers have started offering zero spread trading accounts.
Some of the brokers add other hidden trading charges when they claim to offer zero spread accounts. This can be a marketing technique to allure traders, therefore, it is important to look into their policies before choosing a broker. This guide will cover all the prerequisites that you’ll need to know before choosing a zero spread broker.
Zero Spread Account
Zero spread accounts are referred to the trading account that offer no difference between bid and ask price or have zero or thin spreads. Spreads widen depending on the broker, account you are using, and the currency pair you have chosen. Trading with zero account makes trading easy without having to think about the wide spreads, provided the other trading charges are fairly low.
Low Spread Brokers
Commission: $7/lot RT
Minimum Deposit Requirement: $200 AUD
Withdrawal charges: Nil
Commission: $0.4 - $2 /lot based on the volume of the trade
Minimum Deposit Requirement: $500 (Low spread account)
Withdrawal charges: Nil
Minimum Deposit Requirement: $50
Withdrawal charges: Nil ($40 charged on bank wire requests)
Minimum Deposit Requirement: $300
Withdrawal charges: Nil (2% commission on Bank card of the American Payment system)
Some of the low spread brokers that offer spreads starting 0.0 pips
- Fxview Review : Best overall trading pricing
- Pepperstone Review : Complete MetaTrader suite with cTrader, competitive pricing
- AAAFx Review : True ECN broker, competitive spreads
- Turnkey Forex Review : Best broker for beginners and advanced traders
- FXTM Review: Best for experienced traders, best pricing
- FXCM Review: Competitive pricing, excellent educational guides
- Coinexx Review: Best low cost broker
- Alpari Review : Competitive overall pricing
How Can Forex Brokers Offer Zero Spreads
There are no brokers that offer zero spreads at all times. The costs for spreads might be covered along with other trading charges like commissions or other fees. Zero spreads means there is no difference in the bid price and the sell price of the asset which is not possible at all times.
There are not many brokers that offer low spreads which are close to zero pip on EUR/USD and other major currency pairs. The commissions charged by low spread brokers might be high and you should not consider brokers claiming zero spreads with zero commissions. These are often scams. It is in the best interest of the trader to look into the broker thoroughly before trusting it.
Brokers like Fxview, AAAFx and Pepperstone offer spreads averaging 0.2 pips, 0.2 pips and 0.3 pips respectively on EUR/USD currency pairs, which are as low as zero.
Comparing Zero Spread Accounts
While opting for a zero spread account you will notice that the spreads offered are very low, still so you’ll need to look into other trading costs imposed by the broker like commissions. Also consider the kind of the broker – STP or ECN and read the specifications of the broker carefully. You can also read the specifications on their official sites offered on different assets in case the broker is a CFD broker.
Is a Zero Spread Account Safe?
If you want to use a zero spread account you should consider your trading strategy, if you are using a strategy like scalping which is sensitive to spreads and you would like to decrease your overall trading costs, you should also consider looking at other factors like spreads – floating or fixed; and commissions. The commissions shouldn’t be high as the spreads can widen with the increase in the volatility of the market.
Also consider the execution quality of the broker. The execution speed of the trades should be high (if your trading strategy is execution sensitive) so as to avoid slippage.
Pros of Using Zero Spread Account
Zero spread accounts can lower the overall trading cost and make it convenient for traders involved in high frequency trading like scalping. Scalping and other high frequency trading relies on faster execution of the trades in order to make overall good profits.
Cons of Using Zero Spread Account
There can be a potential chance of slippage while using high frequency algo trading that is based on technical indicators, causing delayed execution or requotes during high volatility in the market.
Zero Spread Brokers
A zero spread broker offers spreads that are zero. In general terms, spread is the difference between the bid (price at which a trader can buy) and the sell price (price at which a trader can sell). This difference or spread is calculated in terms of pips. The difference may increase depending on the latency of the execution of the trade.
Zero spread brokers attempt to increase the execution speed and use a high liquidity pool that allow buyers and sellers to trade without the involvement of a dealing desk.
How Do Zero Spread Brokers Make Money?
The brokers that offer fixed zero spreads are likely to have higher commissions or they might be operating a dealing desk by being on the other side of the trade with the aim of making money.
It could also depend on the execution model they are using – STP or ECN. Some of the other ways may be
- They might try to earn a rebate or add a spread mark-up when they are routing the trade to the third party market-maker in return for compensation.
- They might charge higher commission for each trade made.
- They manage the risks as a dealer on zero spread account
Broker With the Tightest Spreads
Fxview and AAAFx are considered to have tightest spreads starting from 0.0 pips on EUR/USD currency pair. They provide access to the deepest liquidity pool that is aggregated from the network of Tier-1 and Prime Liquidity Providers. They offer higher speed execution of the trades avoiding slippage. Pepperstone also follows the same model of high speed execution of the trades and tight spreads, starting from 0.3 pips on EUR/USD.
Broker With the Best Overall Trading Cost
Fxview, Coinexx, FXCM, AAAFx and Turnkey Forex are the best low spread brokers that also offer low commission charges.
Zero spread broker can be good for the traders if the trading strategy is dependent on tight spreads to accumulate overall profits, provided other trading costs are also fair. Many zero spread brokers may have hidden charges. It is best to research thoroughly before picking one.
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