Selecting the right forex broker can influence the investor’s trading outcomes. Online currency trading has become very popular in recent years. In response, forex brokerage firms have exploded in response to the need. The competition for clients is high. But an investor must be certain of what he’s looking for and firm about obtaining it in a broker.
Spreads Offered by Market-Maker Brokerage Firms
A investor’s trading style helps determine which spread is more applicable. For short-term traders, variable spreads are best. If an investor often incorporates news events to determine his trades, fixed spreads allow him to bypass the unavoidable widening of spreads that frequently occur around breaking news.
Fixed Spreads
Fixed spreads remain constant at all times. These are slightly wider than variable spreads. The broker quotes these throughout the day.
Variable Spreads
Variable spreads fluctuate depending on market interest. Typically, variable spreads are tightest during highly liquid times such as the overlap between the London and New York trading session. Variable spreads are widest during slower periods such as when New York is closed and Asia in not fully open yet.
Another model offered by a few brokers is the nondealing desk broker. They offer traders the price directly from the interbank market. Beware. Not all nondealing desk brokers are legitimate. Those that are will offer very tight bid/offer spreads and charge commissions for each trade. There are some commission-free forex brokers. But they are compensated by the spread between the bid and the offer.