For many traders, spreads have become one of the most important factors in choosing the best forex broker to help them execute their trades. The spread is the difference between the Bid and the Ask price and it is the trading fee charged by the broker, including or except a commission. For example, if the broker charges a four pip spread, then you would pay these 4 pips, usually when placing an order. While spreads are generally accepted as one of the basic costs of trading, they can also eat into your profits, which is why most traders look for brokers that offer the lowest spreads.
If you are looking for the best forex broker who will charge the lowest pips, it should be noted that most brokers cannot really offer very low spreads; only those with large monthly trading volumes and who have already established liquidity relationships with the biggest banks can afford to offer spreads of as low as one to two pips.
One way of comparing spreads of the different currency brokers so you can find the best forex broker is to use an online spread calculator. These tools enable you to see the impact of various spreads so that you can see how they impact on your profitability. All you have to do is provide data such as trading activity in terms of how many deals a day you do, the past return on equity and the ratio of leverage charged.
Sites comparing the various spreads offered by traders have also become very popular. These sites display the spreads offered by various brokers so that you can decide which one you want to sign up with. Here are some guidelines for choosing the best spreads comparison sites to use:
- How detailed are the data they offer? The best forex broker comparison sites will offer not just general data on the spreads charged by brokers but also how much spread they levy on particular currency pairs.
- Does the site display data based on live accounts or demo accounts? Sites that use data based on live accounts offer more accurate results and allow users to track the performance of brokers more accurately so that they can make a more informed decision as to which broker to sign up with.
- How many brokers does it review? At the very least the review site should offer spreads of the major brokers, although the more brokers it offers spread data for, the more useful it is.
- How does the site derive its data? In general, sites may use data from broker feeds or the application programming interface to compute spreads. However, others may use different methodologies such as using the actual forex charts to compute the spreads, which gives the most accurate results.
- What other services does the site offer? The best forex broker comparison site acts like a regular forex site, offering content, analysis and price data to make the site more useful for traders.