Jan 07 2022 19
BRKV - The lowest spread forex brokers are very easy to find. You just go to every broker’s website and check their spreads. After comparing, you can find yourself the forex broker with the lowest spread. But is it really what you’re looking for? You may think it is but it’s not. The thing you want to find is brokers with the lowest trading cost. Spread is not the only thing that decides the trading cost. It’s just one factor among the others like commission, rebate, bonus, deposit...
So how can we find the brokers with the lowest trading cost? You don’t. Luckily, I have done that for you. I have tested with many different popular forex brokers and after a lot of calculation, I’m sure these 5 brokers have the lowest trading cost:
- Exness: best forex broker. Learn more here.
- Hotforex: best for Asian traders Learn more here.
- XM: great forex broker Learn more here.
- FXTM: great for US traders Learn more here.
See full details about top best forex brokers above.
Here are the specific spreads of more common currency pairs:
|Exness||0.5 pip||0.7 pip||0.7 pip||1 pip||0.9 pip||0.6 pip||0.6 pip|
|XM||0.8 pip||1.1 pip||1.1 pip||1.5 pip||1.2 pip||1.1 pip||0.8 pip|
|HotForex||1.2 pip||1.5 pip||1.8 pip||1.9 pip||1.9 pip||1.9 pip||1.7 pip|
|FXTM||0.8 pip||0.5 pip||0.9 pip||1.1 pip||0.6 pip|
|FBS||1.1 pip||0.8 pip||0.9 pip||4 pip||3 pip||7 pip||2 pip|
|Forex.com||1.2 pip||1.2 pip||1.4 pip||3.2 pip||2.3 pip||2 pip||1.2 pip|
|FxPro||1.1 pip||0.7 pip||1.3 pip||0.7 pip||1.3 pip||1 pip||109 pip|
|Pepperstone||1.1 pip||1.1 pip||1.4 pip||1.3 pip||1.2 pip||1.4 pip||1.2 pip|
|Saxo Bank||0.7 pip||0.5 pip||0.8 pip||0.7 pip|
Now, let’s dive into details. Or watch a summary video first:
Spread and Commission
Of course we all agree that the first condition to choose a broker is their reliability. We only trade with trusted and regulated brokers. Then, the next criteria is the transaction cost.
Spread is the difference between the Bid and the Ask prices. It is the transaction fee you have to pay for brokers or banks. The higher the spread, the higher the transaction cost. That’s why most traders want to trade with tight spread brokers. However, not all traders want to trade with lowest spread brokers. The information below is my own experience. You cannot find anything like this anywhere else. So let’s read all this article to understand it all.
How you calculate spread
Spread can be calculated easily just by subtracting the ask price from the bid price. The measurement unit for spread is pip. A pip is one thousandth of the point value of a currency pair, which means it is the fourth decimal of the point value.
Let's have some examples:
- The bid and ask price of EURUSD is 1.08335 and 1.08340 so the spread is 0.5 pip.
- The bid and ask price of USDAUD is 1.08335 and 1.08345 so the spread is 1 pip.
- The bid and ask price of USDCAD is 1.08335 and 1.08350 so the spread is 1.5 pips.
There are 2 types of forex accounts: regular accounts and ECN accounts. When traders register the regular accounts, the brokers will charge spread as their main income. That’s why their spreads are much higher than that of ECN accounts. When they get quotes from liquidity providers, they will add the transaction fee (spread) to those quotes (a process called Markup). For ECN accounts, they will provide the exact quotes that liquidity providers provided. Therefore, they have to charge commission as it is their main income.
Where do forex brokers add spread?
In the forex world, price is very important. On average, the forex market processes more than six billion dollars in transactions every day.
Because the market is so large, the competition between brokers is fierce and therefore, for a forex broker, it is essential to provide quality services at the lowest possible prices.
In addition, news in the forex market travels very quickly. Service interruptions - no matter how small - can cause financial and reputational damage to brokers. Because there are so many brokers to choose from, customers can easily abandon one platform in favor of another.
As a result, forex brokers are keen to diversify their liquidity sources: by having access to multiple liquidity providers, forex brokers can pick and choose the lowest rates for their clients. Some brokers can even combine their liquidity providers into an automated aggregator to automatically choose the best rate. According to a blog post by investment banking giant HSBC, forming an aggregated institution will “lead to improved liquidity, narrower spreads…and thus, better prices.”
However, not all forex brokers are created equal. Each floor has its own set of needs. For some brokers, working with a single liquidity provider may be a better option than working with multiple brokers for a given type of broker. Conversely, for another trader, working with multiple liquidity providers can be a much better option.
What are the differences between spread and commission?
- You pay for spread when trading regular accounts.
- You pay for commission when trading ECN accounts (for ECN accounts, brokers charge commission and spread also, but those spreads are nearly zero. Therefore, the main fee you have to pay is commission).
There are 2 types of forex accounts: regular account and ECN account. I cannot review all broker accounts here, because it will be too long. So I will list down 5 forex brokers that have the lowest spread for regular accounts, because the question is about tight spread brokers. It means you want to know about the regular accounts’ spreads. Here are top 5 lowest spread brokers:
- Exness Check details here
- XM Check details here
- Hotforex Check details here
- FXTM Check details here
What do experts think about low spread brokers?
From the expert's view, brokers who claim they have the lowest spread are not entirely good. You can find hundreds of brokers online that say they have really low spread, may even be the lowest in the market. However, the truly good ones are like needles in the haystack. A forex broker can easily adjust their spread to a very low rate, but that will cost them a lot of money. So, they increase other fees (usually hidden and only revealed when a trade is done) such as the trading fee, commission, deposit rate, account opening fee, or monthly service fees. These fees can together add up to such a huge cost that the low spread they advertise is nothing compared to it.
However, like I said, not all low spread brokers are bad. There are some true brokers that have really tight spreads but at the same time have really low trading costs. They can be brokers who have operated in this market for a very long time and have enough money to keep things cheap on their platforms. So, the bottom line is the lowest spread brokers are not all good, but they are definitely not bad at all.
Can forex brokers control the spreads?
Actually, the answer is yes. Forex brokers have total control over the spreads of the assets they provide on the platform. The price of the asset is determined by the market, but the price on the platform is controlled by the brokers, because they add their spread to that price.
However, it must be obvious to you that no broker would add too much spread to the price because who would want to pay for high trading cost? Right? Brokers in the forex market compete strongly over spread rates. Some have the suitable structure to give out low spread. Some just make up for the low spread with their other fees. So you have to look at the other fees of a forex broker.
Best zero-spread forex brokers
Zero-spread brokers are the ones who offer accounts with no spread charges. It is simply an ECN account. Like I said before, that account type provides the exact quotes from the liquidity providers, so the spread is zero.
This type of account is often named Zero or ECN or Premium... by the brokers. Because there is no spread, brokers have to find another source of income, which is commission. They will charge customers commission for every complete trade. So, the best zero-spread brokers are obviously those who have the lowest commission. Here are some reliable forex brokers who offer zero-spread account and their commission:
|Brokers||Commission per lot|
What type of traders need low spread brokers?
There are 2 types of traders: scalpers and long term investors.
Scalpers are traders who open and close many positions within a short time. As usual, traders who keep their positions open less than 1 month are scalpers. Vice versa, traders who keep their positions open longer than 1 month are long term investors.
They open many positions in a short time, so their main transaction costs are spread and commission. Moreover, they also earn just some pips per order, so they prefer to choose tight spread and low commission brokers. I have traded like both a scalper and an investor, so I know which brokers suit which type. These are the 3 brokers that I find most suitable for scalpers thanks to their low spread and commission:
For long term investors
Because they keep their positions longer, they earn some hundreds of pips per position. Therefore, they don’t care about spread and commission, because they only pay a maximum of 2% of their profit for spread, but their main transaction cost is swap, because they keep their positions open for months. Sometimes, they have to pay up to 90% of their profit for swap. For this type of traders, they prefer low swap brokers. These are the lowest swap brokers that I find most reliable and safe to trade with:
So what type of trader are you? If you are a long term investor, don’t care about spread. If you are a scalper, spread and commission are important.
Why US and UK brokers’ spreads are higher?
The US and UK are the 2 biggest forex markets in the world, but their brokers are less competitive in terms of transaction cost. I did research on hundreds of the biggest forex brokers in the world, and I found that US and UK brokers usually offer higher spreads and commission than Australia and CySEC brokers. CySEC brokers offer the tightest spreads. Example: Here are the spreads for EUR/USD of top forex brokers:
|Exness||0.7 Pip (Pro account) Check more||CySEC, FCA|
|XM||0.8 Pip (Ultra Low account) Check more||CySEC, FCA, ASIC|
|HotForex||1.1 Pips (Premium account) Check more||CySEC, FCA, FSCA|
|FXTM||1.7 Pips Check more||IFSC|
|FBS||1.1 pips||CySEC, IFSC|
As you can see, the CySEC broker, Exness, has the lowest spread. UK or US brokers like Forex.com have the highest spreads. Their spreads double that of Exness. You can find more about Exness's advantages. XM has just rose to second place thanks to its all new Ultra Low account (introduced in December 2018). XM’s Ultra Low account has spread as tight as 0.8 and completely commission-free. Its leverage is upto 1:888 and it has many more amazing features.
You can learn all about Ultra Low account here
Why US and UK brokers have higher spreads?
BRKV - Because of the disadvantages of their regulations. US and UK forex brokers cannot offer high leverage or bonuses, and they have to pay more for the regulation fee. That’s why they have to charge more on spread and commission.
Forex trading strategies that require low spreads
Almost all forex trading strategies would work well with low spread, but the following two strategies especially need low spread in order to succeed:
Low spread for scalping
Scalping is a forex trading strategy that targets at very small profits over a very short period of time. Traders who choose this strategy, who are called scalpers, open and close a position very quickly. They make only 3 to 5 pips for each trade. Therefore, they really need low spread brokers. If the spread is too wide, they cannot make any profits.
Low spread for hedging
Hedging is a forex strategy that traders use when they want to play safe. They open two opposite positions so that if one fails, the other will cover the loss and even make some profits. So with this strategy, traders prefer low spreads so that any risk can be contained easier.
How to choose the best low spread broker?
Again, only scalpers should choose low spread brokers. If you are long term investors, swap is more important.
But there are dozens of tight spread brokers, so which one is the best for you? Here are the conditions to choose the best low spread brokers:
- Regulated brokers. If that broker was regulated in your country, choose it. If there is no broker regulated in your country, choose the trusted and lowest spread broker.
- Brokers who have local payment system. Some tight spread brokers don’t have a local payment system. Traders only can deposit and withdraw by Visa, Credit card, Neteller, and Skrill... so you shouldn’t trade with them, because as usual, you have to pay 2 - 4% of your total deposit amount as the fee for those international payment methods. This price is just too much.
- Low spread and commission. Bonus can also be a great way to cut down your trading cost. You should find reliable brokers with a forex bonus to trade.
Other ways to cut down trading cost
Low spread is not the only factor that affects your trading cost. If you like a broker but they have high spreads, you can check other factors to see if they really have trading cost. Those factors are:
- Bonus: Bonus is a great tool to trim down your trading fee. There are 3 types of forex bonus: welcome bonus, deposit bonus, and loyalty bonus. If you know how to use them correctly, your trading cost can be reduced considerably.
- Swap: If you are a long-term trader, you wouldn't care about spread so much. However, you need to pay attention to the swap rate of the broker. Since you hold your positions for many days, the broker will charge you swap as an overnight fee. So the lower the swap, the better.
- Withdrawal fee: Some brokers can charge a lot for withdrawal fee, so you need to notice this too, especially for scalpers. As scalpers, you only make a few pips per trade. A high withdrawal fee will eat up all of your profits.
If you are ASIAN traders, Exness is the best broker for Scalpers. For Asian traders, check out:
- The best forex brokers in Indonesia
- The best forex brokers in Thailand
- The best forex brokers in India
- The best forex brokers in Bangladesh
If you are African traders, XM is the best.
If you are US traders, Forex.com is the best.
If you are European traders, XM and Exness are the best.
Here are top 5 lowest spread brokers: