What Are FX Spreads?
FX is a term
which is used for the Foreign Exchange market. Every type of market has a
spread, regardless of whether the market involves currency, stocks, or other
commodities. The spread is an important factor to consider when making trades
since it ultimately affects the overall profitability of the transaction.
In the FX
market, the spread is the cost of performing a transaction. FX investors
require access to the FX market through the services of an FX broker. The
broker provides important information about the market as well as providing the
service of matching the buyers and sellers of different currencies. The spread
on a given currency pair is calculated by the difference between the "buy”
price and the "ask” price for a currency. Every time an investor buys or sells
a currency pair on the FX market, a spread is paid.
Most FX brokers
do not charge a commission percentage. These brokers are paid by the spreads on
each transaction that are given to either buy currencies from traders or sell
currencies to traders. Smart investors typically look for smaller spreads
because it translates to less cost for trading, making it easier to increase
profits off smaller market fluctuations.
The FX market is driven by fluctuations in
exchange rates. The smallest notable change that can be made in an exchange
rate is known as a "pip.” Spreads are given in pips, which are typically 1/100
of one per cent for most currency pairs in the FX market. Spreads typically
increase and tighten depending on the liquidity of the market and specific
currency pairs at any given time.
FX Brokers and Spreads
Spreads are an
important factor when looking for an FX broker to invest in the FX market, but
there are other important factors to consider before making a choice. Investors
should look for brokers with consistently low spreads, but also ensure that the
broker provides excellent customer service and access to a variety of different
high quality FX trading platforms to meet various investor needs.
broker with a dedication to providing high levels of customer service can be
difficult in the FX market. The top FX currency brokers understand the value of
being there to help clients with professional (yet personal) service.
The FX trading platform is an essential
part of the trading experience. Investors don’t have time to constantly look up
market information from sources such as Bloomberg
; they rely on trading platforms to
collect real-time market information such as broker spreads from a number of different
sources. The trading platform is also a direct link between the investor and broker,
allowing the investor to execute trades in the FX market.
Is the FX Broker Right for You?
The top FX broker companies offer demo FX
accounts which allow investors to try their products and services risk free.
Demo accounts typically offer full functionality and mirror the live trading
environment with real-time currency prices and spread values. This is an
excellent opportunity for investors to see if the broker provides the right
combination of low FX spreads, trading platforms, and customer service to
create the FX trading experience that is needed.