In general, the spread is the difference between Ask and Bid prices. It was calculated in pips. A trader can significantly profit by using spread. During trading, spread size plays a vital role, because a high spread results in significant losses to the client during active trading. If you wish to speculate the market in trading, it’s better to use spread. It indicates the difference between the bid and the ask price. Simply you will have profited if your buy and sell prices are ending up being correct. Further, in this blog let’s have a thorough look at Fixed vs floating spread.

Across the areas of finance, the term spread has different meanings, whereas in trading it is used to determine the difference between two prices. While trading you either buy or sell a particular asset depending on if you believe the prices for the given instrument will rise or fall. Generally, the narrow the spread, the greater the value you get from a trade.

Types of Spread in Trading

Often the Brokers operating in Forex offer their clients various types of trading accounts. Those accounts have various trading conditions with different methods of the spread formation. There are two types of spread, fixed spread and floating spread.

Fixed Spread

Fixed spread does not change depending on time or general market fluctuations and volatility. In some cases, like low liquidity and high volatility, the spread may be changed temporarily. i.e. be transferred to the new fixed spread level, when the market returns to its normal condition the spread is changed back to its general level. However, trading with a fixed spread will be more beneficial and convenient for clients, it is more predictable, so it is less risky. In a couple of years in conditions of high competition, brokerage companies are constantly trying to provide their client’s innovations, and they refer spreads as well. Most of the companies among them adopt floating spread.

In fixed spreads, the commission size you must pay is known before and in this fixed spread, trading limits are often common during news releases.

Floating Spread

Simply the floating spreads on Forex markets a constantly changing value between Bid and Ask prices. The market phenomenon is completely used in floating spread, most of all interbank relations are characterized by it. So along with the usual trading accounts with floating spread, a number of companies offer clients so it’s called ECN accounts. ECN Forex brokers are the persons who provide a platform where traders trade with each other, by placing buy and sell orders in the system. As like in all markets, clients have lower spread trading on the ECN platform, at the same time they pay a commission to the broker during their operation.

A floating spread is a broker’s volatile income from each of your trades. It can decrease during quiet trading and can increase during market turbulence. In most of the parts, it is lesser in size than the fixed spread. At the same time, significant spread widening is possible during news releases and holdings.

Fixed Spreads Vs Floating Spreads

You will find many account types and options when you are searching for a broker. One of the major things that traders look at is the spreads offer by various brokers, as the differences in this fee can be large and will make a big intense impact on the number of profits that you actually bring home. There are two common ways for brokers to make profit, one is through commissions and another one is through spreads.

Some of the brokers widen the spread to 2 pips or even higher which puts clients at a disadvantage. Traders should compare the spreads offered on different account types and through different brokers to find the best deal possible. Unless they will lose a lot of profits to inflated fees when they could have chosen a broker that offered more competitive pricing.

You should look for spreads around 1.5 pips on the pair EURUSD. Don’t anticipate seeing this on every available instrument, spreads on exotics and some minor currency pairs can climb much higher. If you see a good spread offer, you still are not done, as you will need to know whether the spread is floating or fixed.

Level of Proficiency

For beginners fixed spread is the suitable one to trade. By using fixed spreads, you can trade at anytime you want. Regardless of how frequently the price of a currency pair changes. If the currency prices are moving unexpectedly, there is nothing to worry about that because the fixed spreads value will remain the same. Or at least at a safer amount compared to the real market pricing.

Trading Objectives

If you trade Forex daily, you should dedicate time to watching the market and learning the price movements. In such cases, floating spreads will suit your trading objective better. Floating spread constantly changes, as a day trader you can take advantage of these smaller values. Most importantly when the market is constant.

Those who trade less frequently and not having enough to monitor the price fluctuations are better off trading with fixed spreads. In such cases, you can trade in the same amount of spreads regardless of the time and market volatility.

Appetite for Risks

Your appetite for risk is one of the crucial factors to be consider while choosing fixed or floating spreads. If you are a person who wishes to trade safe and calculated, you can use fixed spreads. Because it helps you to calculate almost every outcome of your trades. Most importantly you no need to pay any additional fees. While trading in a fixed spread because all trading costs are already include in the spread.

In contrast, you can choose floating spreads, if you are a person who seeks more challenges in Forex trading and wants the thrill of unpredictable price movements. Before making any decisions it’s advisable for you to get enough Forex education and trading experience.

Capital Level

If your capital level is high and you have some additional money. You can handle losing a couple of money, sometimes hundreds during your early trades. In such cases, floating spreads will be more suitable for your trading activities.

Under normal market conditions fixed, spreads are usually higher than floating spreads. If the floating spreads for a currency pair are in the range of 0 to 7 pips. Then the fixed spread may stay at 4 pips no matter how much the currency prices move. While you won’t be able to trade with a 0 pip spread, you can avoid dealing with 7 pip spreads. Fixed spreads will make your trading more predictable and calculate if your capital level is constrain.

Trading Style and Strategies

The final thing to consider while choosing a spread type is your trading strategy and style. Floating spread is usually prefer by scalpers because they simultaneously deal with a number of opened positions during the day. Before choosing a spread type there are many factors to be consider. Fixed and floating spreads can only work to your advantage. If you understand and calculate all your actions before executing your trades.

You can choose either Fixed or floating spread according to the factors mentioned above.

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