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Best Brokers by Spread

Since the advent of the internet and online forex trading, the number of online forex brokers continues to increase. One good thing that comes from this trend is the competition among brokers, which has brought down trading costs, especially the spread. Many now claim to offer raw interbank market spreads. But that does not tell the whole story, as the main trading costs would be in the commissions. In this guide, we will take a look at the best brokers by spreads.

What is spread?

The spread in forex trading is the difference between a forex broker’s sell rate and buy rate when exchanging currencies.

When you check the price of any currency pair, you would notice that two different prices are quoted: the ask price and the bid price:

  • The “ask” is the price at which the broker wants to sell the base currency, so it is the price you can BUY.
  • The “bid” is the price at which the broker wants to buy the base currency from you, so it is the price you can SELL.

The difference between these ask and bid prices is known as the spread, which is why it is also known as the ask/bid spread. The size of spreads can vary, depending on the currency involved, the time of day a trade is initiated, and economic conditions.

Our choice for forex brokers with the lowest spreads

We reviewed many forex brokers that offer raw interbank market spreads during the end of 2022, checking their raw spreads without commissions and with commissions, as well as other factors such as their trading platforms, minimum deposits, and available instruments. From our reviews, these are some of the forex brokers with the lowest spreads:

Fusion Markets — Best overall for low spreads

Tickmill — competitive spreads

Vantage — Rich educational resources

FP Markets — One of the highest numbers of tradable instruments

FBS — Best for multiple account options

Admiral Markets — Full suite of MetaTrader platforms

Global Prime — TradingView integration

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What to consider when comparing brokers’ spreads

When comparing the spreads charged by different brokers, you must pay attention to certain things. One of them is that brokers often offer different account types, which can have different features, including spread types, modes of execution, minimum deposit requirements, and available tradable instruments.

It is important to find out the type of spread and whether there are other trading costs to cover outside the stated spreads. Some brokers claim to offer zero spreads just to lure customers, but the so-called zero spreads aren’t the main trading costs. The customer still has to pay commissions, and when that is factored into the trading cost, the broker might turn out to be more expensive than the ones that initially seemed expensive. So, as a trader trying to choose a broker, you must find out the type of spreads the broker offers.

The different types of spreads brokers offer

Generally, the spreads a broker offers can be the raw interbank market spread without markup or a marked-up spread. One of the major means which brokers use to make money is the commissions that they charge traders for buying or selling currencies on their behalf. There is no broker that won’t charge a commission for its services. They can charge commissions separately,  or add them to the spreads.

A marked-up spread is one in which the trading commission has been added. It gives a complete picture of the trading cost. The raw spread, on the other hand, doesn’t tell you the complete cost of opening or closing a position with a broker. You have to dig deeper to find out what the broker charges in commissions and then add it to the spread to get a picture of the cost of trading.

Which spread account is best for scalping?

Many brokers offer different account types with different spreads and execution methods. Some accounts may have marked-up spreads, while others may have raw spreads. Since scalping involves frequent trading, which accumulates trading costs, it’s best to go for an account that offers the lowest trading cost. This may not necessarily be a raw-spread account, as what matters is the trading cost and not just the spread.

The best thing to do is to add the trading commissions per side to the raw spreads and compare the value to the spreads on the account with marked-up spreads. Whichever is lower offers a cheaper trading cost. For many brokers though, the raw spreads and the commissions may still turn out cheaper than the marked-up spreads.

How brokers that offer raw spreads make money

Usually, brokers make money from spreads. But many advertise themselves with raw spreads; some even claim to offer zero spreads. While they may be offering raw interbank spreads, which can start from 0 pips, it doesn’t mean they offer free trading services. They make their money from charging trading commissions, which may even be higher than the spreads on some occasions.

Other ways brokers make money include:

  • Earning a rebate by routing your order to a third-party market-maker in return for compensation.
  • Managing risks as a dealer or taking the opposite side of the trades
Why considering raw spread alone can be deceptive

When trying to know a broker’s trading cost, it is highly deceptive to consider only the broker’s so-called raw interbank market spread, as that doesn’t tell you anything about the real cost of opening or closing a position with that broker. Most brokers that offer raw spreads charge trading commissions, and that’s where the actual trading costs lie. Be sure to find out the commissions and add to the spreads to know the real cost.

Sometimes, brokers quote their trading commissions per round turn or per side. Per round turn means for both opening and closing a position (two transactions), while per side means for one transaction —opening or closing a position. If a broker quotes its commission per round turn, divide it by 2 and add to the spread to know the actual cost of opening a position with the broker.

Any broker that markets itself as offering zero spreads without talking about its commissions is only trying to lure customers. It is up to the customer to read the fine print and find out the real trading costs.

What is a zero-commission account?

A zero-commission account is an account that does not charge trading commissions. Make no mistake about it; commissions are charged, but they are added to the spreads. In other words, the spreads are marked up, making them bigger than those of raw-spread accounts.

Just as some brokers marked themselves as offering zero spreads while charging commissions, others advertise themselves as offering zero commissions. What you must bear in mind is that no broker offers free services. The cost of trading is either completely in the spread or a combination of the spreads and commissions.

Why marked-up spreads may just be as cheap

As a trader, one of your main aims is to get the lowest trading cost. Whether it is completely marked up in the spreads or charged separately as trading commissions does not matter much. So, you must always try to understand the type of spread a broker offers — raw spreads or marked-up spreads. When it is raw spread, find the commission and add to it to get the real cost.

In some situations, you may find that the marked-up spread may be as cheap as, or even cheaper than, raw spreads + commissions. In that case, it is even better, as you can see your P and L while trading without further calculations.

How a broker’s spread may tell you it’s execution model

Brokers use different modes of trade execution — ECN, STP, and market making. A broker that offers raw spreads is likely to be an ECN broker, which routes the interbank quotes directly to the clients without intervening. A broker that offers marked-up spreads may either be an STP broker or a market maker.

Are there brokers that offer zero spread?

Brokers that use the ECN model of trade execution usually route the interbank price feeds directly from the liquidity providers to the clients. That way, the clients get the real-time spreads the banks charge, which may, on rare occasions, be as low as 0 pips. Usually, the spreads start from 0.1 pips and rise when there are high trading activities and volatility.

So, no broker consistently offers zero spreads. The spread falling to 0 pips is accidental, not a norm. the so-called zero-spread brokers simply offer raw interbank market spreads.

Is it preferable to trade with a zero-spread broker?

It depends on what the overall trading cost of the broker is. What matters to you as a trader is how much you pay in trading costs, not what the broker calls itself nor how it structures its spreads and commissions. Go for a broker that offers you the cheapest trading cost, whether it is completely marked up in the spreads or charged separately as spreads and trading commissions.

A so-called zero-spread broker may be charging $10 per side, while the raw spread is mostly around 0.4 pips for EUR/USD. In this case, the cost of opening one lot of EUR/USD would be $14 pips (equivalent to 1.4 pips). Compare that to another broker with a marked-up spread that stays around 0.8 pips on average. So, while it costs 1.4 pips to open a position with a so-called zero-spread broker, it only costs 0.8 pips to open the same position with a broker offering a marked-up spread.

Which type of spread account should you choose?

For a broker that offers both a marked-up (zero-commission) account and a raw-spread account, choose the account that offers you the lowest cost of trading. If the raw spread plus the trading commissions is bigger than the spread of a marked-up account, choose the marked-up account. Otherwise, choose the raw-spread account.

Which brokers offer low spreads?

To know which broker has the lowest effective spreads (trading costs) compared to the rest of the market, we added the per-trade commissions to the real-time spreads. This gives us the actual trading costs if we were to enter a position at that time.

These are brokers with the lowest spreads for the EUR/USD pair based on the ones we researched on Myfxbook:

Fusion Markets — 0.45 pips (Zero account)

Tickmill — 0.5 pips

Vantage — 0.8 pips (Raw ECN account)

FP Markets — 0.5 pips (Raw account)

FBS — 0.9 pips

Admiral Markets — 0.46 pips (Zero MT4 account)

Global Prime — 0.8 pips

Comparing brokers by spreads

We tried to compare the spreads charged by these eight brokers on various currency pairs to see which one charges the lowest spreads. For this, we used Myfxbook’s real-time real spread comparison tool, which checks the live spreads charged on 10 currency pairs in real time.

First, we checked the raw spreads without commissions and then checked when commissions are included. The 10 forex pairs we checked are the following: EUR/USD, GBP/USD, USD/JPY, USD/CAD, USD/CHF, NZD/USD, EUR/JPY, EUR/GBP, GBP/JPY, and EUR/AUD. You can see our findings in the images below:


 

Spreads With Commissions, Date: 15/09/2022

Which broker has the lowest effective spreads

From our real-time trading data, Fusion Markets is the winner. The broker offers the lowest spread when commissions are added and offers the most consistently low spreads across all currency pairs checked.

BDSwiss maintains the same 0.2 pips for EUR/USD and 0.3 pips for USD/JPY when commissions are added that it shows without commissions. This shows that something is wrong, so we completely ignored BDSwiss. It could be possible that Myfxbook could not access the broker’s trading commissions.

Which is the best broker for scalping?

Fusion Markets is an excellent low-cost broker, that is suitable for scalping. The broker offers the full suite of the MetaTrader platform and allows algorithmic trading programs used for scalping-based strategies. Fusion Markets’ Zero Spread Account offers one of the lowest trading costs (spreads plus commissions) in forex trading.

Note that when considering a broker for scalping strategies, you must focus on the actual trading cost, not whether it is a raw-spread account or a marked-up spread account. You should also consider the broker’s order execution policy during volatile periods, such as the London or New York market open or during a news release. Does the broker suspend trading or widen its spread?

Is it possible to trade forex without a broker?

No, it is not possible. Although the forex market has no central exchange and is conducted over the counter (OTC), you still need a broker to access the liquidity providers who exchange the currencies. It is the broker that connects you to the market using a trading platform. The broker also provides you with leverage (lends you money) to increase your position size. When choosing a broker, make sure it is licensed by a tier-1 regulatory authority.