In Forex trading, spread is the difference between the ask price and the bid price. For example if a GBP/USD is quoted at 1.99846/1.99841, the spread would be 5. The Forex brokers can choose to use either a fixed or variable spread for their trading platform. It is pretty important to understand the kind of spread that your Forex broker is offering. When using fixed spread, there would be no change in the magnitude of this value. The magnitude of fixed spread always remains constant irrespective of the market condition. However, when the broker is using variable spread, the magnitude of the difference will keep on changing significantly depending on the market condition. There are various advantages of using fixed spread as stated below.
Better scalping strategy
The opportunity to work on fixed spread often makes Forex scalping very profitable. As always, scalping would only be more profitable under tight spread. This is the primary benefits of using fixed spread. Many Forex traders are using scalping technique because it is very profitable trading strategy. The trader can use it to make massive profits within a short duration if the market favours him. Rather than the market markets, scalpers often choose to use brokers using fixed spreads so as to increase their profitability. In this case, there is no swinging nature of the spread that could change the profit levels. Learn more about scalping at scalping strategies.
High level of transparency
Both the Forex trader and the broker enjoy greater level of transparency when using fixed spreads. Under fixed spread in particular when dealing with interbank networks prevents Forex brokers from engaging in unethical practices such as changing spreads in their favour. Most Forex traders are affected with this problem in the market. The market contains unethical brokers who would want to spike prices to favour them. They usually do this by simply increasing the spread in the expectation of big news in the market. The result is a conflict of interest between the trader and the broker.
Easy automated trading
Many Forex traders usually depend on automated trading techniques. They most use the Forex robots or the provided expert advisers to engage in automated trading. It is only when using fixed spreads that the process of automated trading becomes easy, simple, and profitable. However, this becomes problematic when the trader is using variable spreads or ECN. There are many benefits of using automated trading as the trade can be executed in the absence of the trader. When using the variable spreads, applying the automated trading techniques become very problematic because the Forex robots are unable to integrate the floating spreads. It subsequently results in trade losses. Check out the details of a regulated broker with fixed spread that allows automated trading on LiteForex review.
Easy news trading
News trading becomes very simple and easy when using fixed spread as compared to variable spreads. Under the conditions of variable spreads, news trading cannot work well because the spreads usually widens before major news is released in the market that would shake it. This can leads into massive losses. This is a rare occurrence when using fixed spreads.
Conclusion
It is pretty important to understand the type of spread that your Forex broker offers. This is useful for developing Forex trading strategy that is good and profitable. The Forex broker can use either fixed or variable spread; all have their advantages and disadvantages. There are advantages of using fixed spreads other than what are discussed above. The benefits of using fixed spreads are that there is no uncertainty when trading. In addition, fixed spreads work well with most Forex trading strategies.
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