Many traders begin their trading in the market and their first concern is about spreads and commission because they affect their benefits and profit. I have received many emails from subscribers to ask about how to find the lowest spread brokers. List down top 5 lowest spread brokers to me is very simple however I wonder what those brokers will do with that list. So I decided to write this article to clarify all about spread for traders’ deep understanding.
Firstly, what is spread? Spread which is the difference between the Bid and the Ask prices means the transaction fee you have to pay for brokers or the banks. The higher the spread, the higher transaction cost. That is the reason why all traders want to trade with the lowest spread brokers. However, there are still some traders who don’t pay attention to spread very much. It sounds strange but I have proofs and basis to say that. If you still don’t understand much clearly, let’s read up to the end of the article.
To begin my writing about spread, I list down here the top 5 lowest spread brokers in the world for your reference first:
- Exness.com
- Hotforex.com
- FBS.com
- XM.com
- FxPro.com
- Difference between Spreads and Commission:
In forex market, there are 3 types of forex brokers, they are Market Maker, STP and ECN. But there is some difference among them. Market Maker and STP have the income from spread while ECN focuses to get money from commission charge. That is the reason why Market Maker and STP brokers often add transaction fee (spread) to the original quotation (a process called Mash up) from liquidity providers. Instead ECN brokers will give customers exact quotations but add commission for getting more income.
So the difference between Spread and Commission is stated as below:
- Spreads are the main income of Market Maker and STP brokers.
- While commission is the main income of ECN brokers. ECN accounts are often charged both commission and spread however the spread here is nearly zero so the main fee traders must pay here is commission.
Because there are three type of brokers but I cannot mention all of them once so I just focus on main topic of this article of spread. So I will concern much about two types of brokers: Market Maker and STP.
- Types of traders need low spread brokers:
Same as types of brokers, there are also two types of traders in the forex market. They are scalpers and long-term investors.
Scalpers are ones who open their orders and positions in a short time – less than one month. Their transaction cost are spread and commission and they also just earn some pips (Price Interest Point) per order. Therefore scalpers tend to prefer low spread and low commission brokers.
Long-term investors often keep their orders open longer than one month – several months or a year – and earn hundreds of pips per position. So investors don’t pay much attention to spread and commission because they just pay maximum 2% of profit for spread. Instead investors often focus more on swap. Orders with long-term trading can be affected by currency rate so investors concern much about change of trading currency at every time. Sometimes investors must pay up to 90% of their profit for swap. In conclusion, long-term investors prefer low swap brokers only.
So what types of traders you are:
If you are long-term investor, don’t concern about spread.
If you are scalpers, spread and commission are important factors in trading.
- US and UK brokers’ spread are much higher than others and the reason
As you know that UK and US are the biggest fore markets in the world however brokers there are less competitive in transaction cost aspect. After researching hundreds of top forex brokers in the world, I found that UK and US brokers offer much higher spreads and commission than Australia and CySEC (Cyprus Securities and Exchange Commission) brokers, and CySEC brokers have lowest spreads.
Below table is one example to prove above point. Here are the spreads for EUR/USD of top forex brokers:
| Broker Name | EUR/USD spread | Regulation |
| Exness | 0.7 Pip (Classic account) | CySEC, FCA |
| Hotforex | 1.1 Pip (Premium account) | Vincent |
| FBS | 1.1 Pip (Standard account) | Belize |
| XM | 1.7 Pips (Zero account) | FCA (UK) |
| FXTM | 1.7 Pips (Standard account) | Belize |
| Forex.com | 1.8 Pips | NFA (US) |
| FxPro | 1.7 Pips | FCA (UK) |
Check the best forex accounts in 2019.
From the data of the table, we easily realize that CySEC brokers and Exness have the lowest spread while UK and US brokers have the highest spreads which double that of Exness.
The only reason to explain for US and UK brokers’ high spread is the disadvantage of their regulation. US and UK regulations don’t allow them offer high leverage or bonuses while brokers have to pay for regulation fee as well. As the result, brokers must charge more spread and commission.
- How to choose the best low spread broker:
I have traded with the best forex brokers Brokersguru for years and experienced many different situations in trading. Scalpers should pay much attention to the spreads of brokers which directly affect their profit and benefits of trading. There are several conditions that traders need to notice before choosing the best low spread brokers as below:
- Regulated brokers: if that broker was regulated in your country, let’s choose it immediately. If there is no broker regulated in your country, try to choose the trusted and lowest spread brokers instead.
- Brokers with local payment system: several low spread brokers don’t support local payment system so traders only deposit and withdraw money through Visa, Credit card, Neteller and Skrill, etc. By this way, you must pay 2-4% of your total deposit amount for international payment fee. This price is too much for you so you should not trade with them.
- Low spread and commission.
- Good local supporters.
Below is my advice of choosing the brokers according to your location. It is very helpful for beginners or even experienced traders.
If you are Asian traders, Exness is the best brokers for Scalpers.
If you are African traders, XM and FxPro are the best.
If you are US traders, Forex.com is the best.
If you are European traders, XM, FxPro and Exness are the best.
Brokersguru proudly brings you this article. “The lowest spread brokers” is written by Mr. Bruce Kovner, an expert in forex trading for many years. Mr. Kovner chooses Brokersguru, which is in Thailand, due to its dedication and commitment to give forex traders trusted, safe, and professional knowledge about forex brokers.