If you wish to start a career as a trading expert, the first thing you must do is choose the best forex broker. You need to consider all the trading costs associated with the selected broker. Trading is changing worldwide, and the right broker can simplify the job. Nowadays, brokers have become quite competitive and want to gain as many clients as possible, which is why they tend to offer the best services to them. There is a race among brokers to offer smaller and smaller spreads to their clients.
You must be on high alert whenever searching for a forex broker. Apart from the trading costs, you also need to see if the broker follows regulatory compliance and reputation in the market. You can reduce your trading costs by choosing a broker who offers the tightest spreads. Traders must know more about the most liquid currency pairs provided by the broker in question. While some currency pairs show great promise initially, it might not be the case. Therefore, traders must spend time researching the market before making a final investment.
How Does Low-spread Trading Affect the Industry?
Because of the spread, brokers are able to get pricing from the banks and offer the same to their customers at the best prices, enabling them to make a profit. Thus, brokers act as middlemen between traders and banks. They help in easy transactions and allow traders to make instant profits. Some time ago, the spread on the most liquid currency pair, i. EUR/USD used to be three pips, but this has changed with time. The spreads began to shrink as time progressed. With the development of the 5-digit pricing system, the spread squeezed further and became a fraction of the forex price movement (pip). These pips allowed brokers to offer precise pricing to the traders. Rather than passing the whole numbers to traders, brokers could now offer exact fractions of the prices.
With so much competition, experienced brokers pushed further and started offering tight spreads to their clients, which helped them get more out of their forex trading. This was possible because they found newer ways to make money. Either they charged commissions or inactivity fees; all in all, brokers were able to offer the narrowest spreads possible without hindering their own income. From a trader’s point of view too, low spreads become essential when choosing a broker.
Tips to Trade With Tight Spreads
In order to trade with the tightest forex spreads possible, you need to do certain things to keep your spreads even tighter. Irrespective of how tighter the spread your broker offers, it tends to widen. Here are some instances:
- If you choose exotic pairs for trading, you will see they don’t have tighter spreads. It is their very nature to be highly illiquid.
- There are times when traders notice low market participation. It can be when the trading week has opened, or the market is just about to close. Here, the spreads are wider.
- When there is a period of extreme market volatility, such as a big event coming up, the spread tends to increase. A sudden rise in the asset’s demand or supply makes market makers quickly change the prices to meet higher price changes. Consequently, this leads to you paying a wider spread.
Looking For The Best Forex Broker in the UK With The Tighter Spreads?
It is always recommended to opt for a regulated broker with a tighter spread. A significant way to ensure that you are dealing with a regulated UK broker with tighter spreads is checking where the brokerage is getting the liquidity from. If it’s getting liquidity from some significant bank, it is ensured that the broker has sufficient liquidity to provide you with the tightest spreads possible.