Significance of Spread Size in Trading
Ever wonder how marketers play with the psychology of the customers? Offering the same product at a price of $99 which earlier used to be priced at $200.
“Well, it is no shock to learn how even the tiniest drop in the prices of a certain commodity or service attracts various customers towards purchasing it.”
For a customer, a product worth $499 may look cheaper than the one priced at $520 even after knowing the fact that the difference in prices of the two products is merely 21 bucks or even lesser in many cases. Similar is the case in forex trading. Forex Trading, in its most true essence, refers to the process of buying and selling currencies at their current market price in a given period.
The difference between the prices of currencies becomes the trader’s profit. In forex trading, spread size plays a vital role, but before that, we should know what a spread size essentially means. Spread refers to the difference between the selling price of the currency and the buying price of the currency pair. There exist two prices in each currency pair; namely, a bid price and an ask price.
The base currency is placed on the left-hand side of the currency pair, whereas the volatile is placed on the right-hand side of the currency pair. A bid refers to the highest amount of consideration that a trader is willing to offer against the instrument. The “Ask” signifies the minimum amount at which an induvial is willing to sell the instrument, also called supply. The difference between Bid and Ask is termed as “Spread”. The spread mostly determines the brokerage service costs for a given transaction within the trading environment.
Factors that influence the rigidity of a spread are as follows:
- The liquidity of a financial instrument largely depends on the availability of the buyer and the seller. In case of intense competition between the buyer and the seller, tighter will be the spread.
- Due to rapid advancements in the technological environment, many brokerage firms provide easy access to tight spreads.
Daily, we come across news floating about the economic calendar to review if the expectations of various interested parties are met or not, which is another reason behind the fluctuations in the market. Much like the retail traders, traders that provide high liquidity are usually unaware of the outcome prior to the news release. To curb the offset, they choose to widen the spread to reduce the risk.
Now that we are aware of the significance of a tight spread, we shall now be going ahead with leading brokerage services that provide low spread Forex services. Spread plays a crucial role for forex traders due to its cost factor. Lower the spread would, in turn, mean that lower is the cost, and subsequently, lower will be the volatility with fewer fluctuations in the prices. For new investors or even for those who frequently participate in the Forex market, opting for a Forex broker that provides you low spreads may be beneficial for you. You need to pick one that offers narrow Forex spreads.
Here, we have listed a couple of Forex brokers that are licensed and provide narrow spread brokerage services in the industry. The brokers vary in terms of location; while some are in Australia, others belong to the UK and many other countries. It must be ensuring that the selection of a Broker should be subject to acceptability in your country.
Forex: Founded in the year 2001, forex.com is one of the most profound companies in terms of spreads offered and customer satisfaction. With GAIN as the parent company, Forex has come a long way in the league to capture a majority of the trading industry.
“Forex has its operations running in multiple locations across the world including Singapore, UK, Canada, Japan, Australia, India and Cayman Island.”
It is the only company with a unique attribute of offering varied products to different countries. Traders are allowed to choose from a plethora of platforms like MetaTrader4, MetaTrader5, MetaTrader mobile, MetaTrader app. It also allows the traders or prospective clients to operate the platform and experiment with the interface. Before the clients are given to operate with real money, they are made to practice, rather than experiment with fake money.
Not just this, the company also allows a minimum deposit of $100. The company does not charge a withdrawal fee from their client. Along with which they allow minimum deposit for the lowest account type. The spreads provided by the service company are relatively low. Along with its humongous benefits, there are certain shortcomings too; they have an extremely slow verification process which usually takes an average of 3 days.
EasyMarket: Founded in the year 2001, later rebranded as easyMarket. It is monitored by Easy Forex Trading Ltd. Whose sister’s the company to Blue Capital Market Group. Headquartered in Marshall Island with other branches located across the world. Its most peculiar features of all are that it provides fixed spreads.
Some of the many instruments offered by easyMarket are currencies, agricultural commodities, metals, vanilla options, and energy. easyMarket allows its customers to explore the platform and work with fake money instead of real money. They also provide referrals and up to 30% bonus for new traders with an initial investment of $2000.
The company offers a fixed number of spreads to its traders on every possible trade. It also provides the facility to the traders the difference between the expected price and the offered price and the price of executed trade. However, easyMarket does not allow trading facilities to customers ranging from the US and many other countries. They also provide a spread difference that is relatively tight as compared with the competitors.
Even though the base account charged as the minimum deposit by both the companies is pretty high, it is best suited for individuals or traders who have some expertise or experience in the particular field of the financial market.
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