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Low Spread Forex Brokers

The modern forex market’s origins can be traced back to the early 1970s, as it was then that forex officially switched to a free-floating system. The market as a whole was still different compared to currency trading as we know it today, however, since retail trading was practically no-existent. Hedge funds, banks, and large entities as a whole were the only players who could take part in forex trading.

The 90s marked retail investors’ official welcome into the foreign exchange market, seeing as this was when the very first online brokers were introduced. This sparked a demand for more brokers that would offer their services on the world wide web, which, over time, resulted in investors having an array of websites to choose from. Although forex is still largely dominated by large entities, retail traders now make up a small but evident portion of the participants in FX trading.

How Forex Trading Works for Traders and Brokers

Forex TradingThe forex market is characterised by its unmatched liquidity. What is also notable is the lack of a physical exchange. Forex trading is done electronically, which designates it as an over-the-counter market.

When you trade a currency pair, what you are doing is exchanging the quoted currency for the base currency, and there are several key components to forex trading that novice investors should be well-acquainted with.

The Spread

Knowing what the bid (sell) price and the ask (buy) price are goes a long way to understanding the spread. The former is the price for selling the base currency, while the latter shows the price of buying it. The difference between the two is what we refer to as the spread. Instead of charging a commission for forex trades, brokers tend to incorporate the fee into the spread itself. The wider the spread, the more expensive trading an instrument is, which is what makes low spreads appealing to investors.The spread is measured in pips.

Lots and Pips

Lots are the unit of measurement investors use when they trade currency pairs. Each lot contains a set number of currency units, and there are several lot types in terms of size, each comprising a specific number of units. The first and most common lot is the one referred to as Standard, and it contains 100,000 units. Next is the Mini lot, which is smaller at 10,000 units. Finally, the lot size that is typically the smallest is the Micro lot, as it contains just 1,000 units.

Pips express the value change of a pair. The term stands for percentage in point, and the pip is typically the fourth decimal place of a price quote. If the pip count of a pairing’s spread is small, this suggests minimum volatility and that trading the instrument in question is not expensive.

Leverage and Volatility

Leverage is a major component of forex trading, seeing as it is very difficult to make a significant profit without it. It involves using money you borrowed from your broker in order to invest more funds than you have available for the trade in question. This has its own pros and cons.

On the one hand, the amount by which leverage can amplify how much money you make in the FX market is significant. This, however, also means that leverage can have you lose far more money than you would otherwise.

Volatility is similar when it comes to the risk factor, as it, too, can be a double-edged sword for unsuspecting investors. Volatility describes the fluctuation of a currency’s value. It provides numerous opportunities for making a profit off of trading a forex pair, but it can also lead to unpredictability if a sudden upswing or downswing occurs.

Top Forex Trading Brokers

choosing a brokerThe spread of a pair is one of the most important aspects of a broker. The lower the spreads, the cheaper it is to trade, seeing as the spread incorporates the fee you pay to a broker for using their platform.

Other characteristics of a great broker can include an extensive library of educational resources, a catalogue of different forex pairs along with other trading instruments such as indices and stocks, various payment solutions, the broker’s reputability, and more. Keeping track of all of this while looking for your broker of choice is easier said than done, especially for an aspiring investor. You can, therefore, use the following list in order to find the broker that boasts competitive spreads and best suits your preferences.

Related Topics


1. How long to deposits and withdrawals take when it comes to forex brokers?

This would depend on your broker. In general, however, deposits are either instant or do not take over several hours. Withdrawing funds, on the other hand, takes longer. Several business days is the typical minimum wait time, but it can, at times, reach a week or even more.

2. What are long and short positions?

You conduct a long position when you buy the base currency, while shorting a position involves selling the base currency. The following examples showcase what these actions look like for a specific currency:
  • Short GBP/USD: you sold the pound, and bought the dollar.
  • Long GBP/USD: you bought the pound, and sold the dollar.
Since these are two separate actions, the overnight fees for longing or shorting a pair will be different. In addition, choosing between the two actions depends on which currency you believe will strengthen, and which one will depreciate in value.

3. Why does my broker prompt me to enable two-factor-authentication?

Two-factor authentication adds an additional layer of security to your account. If you enable it, you will confirm your identity an additional time each time you log in. The code is typically sent either via email or SMS, but either way, it ensures that no one else will be able to login to your account and steal your data even if they know your password.

4. How do I undergo verification at my broker of choice?

Verification can be done once you have created your account, and you will either be automatically prompted to verify your identity, or you will find the option in your account settings. The main document that you will need to prepare is a valid identification document such as your identity card, passport, etc. In addition, most brokers will require documentation regarding a recent utility bill.

5. How can I know whether a forex broker is reputable?

The main aspect that can assure you of a broker’s reputability is the entity or entities that regulate its operations within the country you reside in. For instance, investors in Britain should only trade at brokers regulated by the Financial Conduct Authority. If you live in Australia, however, the Australian Securities and Investments Commission is the entity that should be regulating the broker you are eyeing. Other authoritative bodies include, but are not limited to, the Cyprus Securities and Exchange Commission in Europe, the Dubai Financial Services Authority in the Middle East, and the US Financial Services Agency.