Sunday, March 12, 2017

Fixed or Variable Spreads?

What is the difference between fixed spreads or variable spreads?

In the case of fixed spreads, the difference between the purchase price and the selling price is expressed in a certain fixed number of pips that will depend on the instrument you are investing in. In the case of variable spreads, this spread will vary dynamically according to the moment in which you are executing the operation (current liquidity) and also depending on the investment instrument.

The advantage of fixed spreads is that they will let you know in advance the exact price of buying and selling. Fixed spreads can be a good option to carry out certain trading strategies and especially in times of less liquidity, such as at night for example. The biggest drawback of fixed spreads is that most of the time, variable spreads are usually quite cheaper.

Which brokers offer fixed spreads or variable spreads?

The brokers that offer fixed spreads are usually of the Market Maker type since the operations are not executed in the market but in its table of operations (Dealing Desk) therefore they can offer some spreads determined in advance to its clients. The biggest drawback of the Market Makers brokers is that they can lead to conflicts of interest with their customers because the broker is generally acting as a counterpart of the operations.

Therefore, in the case that you are looking for a broker with fixed spreads, it is important to be a serious, professional broker forex terbaik di dunia with a transparent order execution policy. Many traders want to operate with fixed spreads to avoid surprises in times of high volatility or in the face of economic news that can significantly alter the buying and selling prices in the market. You should note that many Market Makers brokers that offer fixed spreads have clauses within their trading conditions that indicate that these spreads will remain "under normal market conditions" but may be expanded at specific times to coincide with large-scale economic news relevance.

Variable spreads are usually offered by STP / ECN (Electronic Communication Network) brokers that create a network in which they interconnect with the largest providers of interbank liquidity in the world and manage to dynamically offer the best available spread at any given moment to his clients. ECN brokers do not have a trading desk (Non Dealing desk) and transmit their clients' trading operations to the market so that there is no conflict of interest, usually lower spreads and any trading strategy is welcome without restrictions (expert advisors , Scalping, hedging). Some ECN brokers also choose to offer very low market spreads and apply a transaction volume commission as a way to receive their fees instead of slightly increasing the spread of each transaction individually.

There is also the figure of brokers with different types of trading accounts, some in which they act as Market Maker and offer fixed spreads and others in which they act as ECN and offer variable spreads.


In short, fixed spreads may be more suitable for beginners, by knowing in advance the purchase and sale price available, or to carry out certain strategies that require it, to operate in moments of less liquidity, Variable spreads are usually more Low prices that fix them most of the time and are generally the best option for daytrading, for automatic trading systems with expert advisors, professional traders or for strategies like scalping, hedging.

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