Forex markets are booming with billions of dollars switching hands every day, and this can be very enticing to traders looking to hit it big. Currency pair trading, when done properly, can be a fast and exciting way to make money, but there are always risks involved and precautions to take.
It is important to understand low spread forex brokers and the markets before risking your money. One false move can have you going from earning to losing, and that can be a painful experience. Below you can find out some basics about low spread brokers and a bit about how you can take advantage.
Defining the Spread
The spread is an essential concept to understand if you want to get into currency trading. You have most likely heard the term in regards to other applications, and in forex trading it has a similar meaning. The spread is the difference between what price you can buy a particular currency pair compared to what you can sell it for at any given moment.
Every broker is going to have a different trading platform, different spreads, and even different currency pairs to trade. This is why you must get a good idea of what you are looking for in a broker before doing business with one.
How Low Spread Brokers Get Paid
Low spread forex brokers get paid based on what the spread is for any currency pair, as the price of buying will be included. This means that your broker may not be taking a commission, but they are making money off of every single currency pair they sell to clients, as well as every time they buy currency from them. Basically, you just don’t see brokers getting paid, but they are making money from every deal.
With Australian brokers and brokers all over the world, there are two types of spreads that may be offered. Fixed spreads are exactly how they sound, they are a fixed price difference that does not move. This is going to keep things stable regardless of how crazy the markets might be.
Not every broker is going to offer fixed spreads, as they have to be using a dealing-desk model to be able to do this. This allows them to basically act as the middle man for trades between large liquidators and the end-client. Trading with fixed spreads normally requires a less initial investment, and they are much easier to predict the outcome of.
A variable spread is also going to be just like it sounds, a spread that will fluctuate over time and never stay the exact same. This type of spread is very commonplace and it reflects the volatility of the markets at any given time. You are going to get a more accurate idea of how the market is actually moving and trade accordingly.
While variable spreads do change a lot more, you are going to have a chance to make money faster. This type of trading is not going to be for everyone, as some people like to trade more frequently than others. If you like to really get in on the action and excitement, variable spread brokers will be right up your alley.