Shopping for a broker offering the lowest spread

When you start Forex Trading, you will find that all brokers attract traders with their offer of lowest spread. If you compare spreads, you will be surprised to find different spreads. If the price of a currency is the same everywhere, why does the spread differ between different brokers? This is something that beginners have to understand.

The spreads vary from one broker to another. This should be a major factor to be considered when you are shopping for a broker. Traders will find that many brokers will not take a commission or ask for it outright, even though they are providing you with their services. But the services are not free. Their fee is taken from the spread and that is why you should shop for a broker with lowest spread.

A spread is the difference between the bid and ask price of the currency. A broker adds this difference to the cost of your trade and retains it as his fee. So when you are told that he is not charging a commission for his services, you can be assured that the commission will be there but it will not be visible to you.

Currencies like EUR/USD, GBP/USD et al have the lowest spread and the currencies that are not very traded very frequently have a higher spread. When you are shopping for a broker offering the lowest spread, check the account for which it is being offered. Sometimes, different spreads are offered for different types of accounts. For example, for a good mini trading, the broker may have higher spreads.

When the spread on the currency pair is small, it is better for the trader. But some traders, especially day traders and scalpers, do not care too much about the spread. For them, each pip counts, as the size of the spread makes the profit. If you have a broker offering a 4 pip spread as compared to a broker offering a 3 pip spread, then the difference of 1 pip can make a dent in your pocket.

Therefore, when you are shopping for a broker, check the spreads. In case a trader offers you benefits like zero commission or cash back opportunities, then you must beware. The broker will find some way to claim his fee one way or the other.