Online Forex Trading Info

You can go back and read Part 1 of this article here

Spreads should always be reckoned in conjunction with depth of book. Strangely enough, in the matter of economies of scale, Forex doesn’t even behave like most other markets. For example, on the inner-bank market, the larger the ticket size, the larger the spread is.

When you see a 1-pip spread on an ECN platform, you have to inquire if that spread is valid for a $2M, $5M or $10M trade, which it believably isn’t. Many times, the tight spread that is offered is applicable only to capped trade sizes that are very insufficient for most of the general trading strategies.

Spread policies are different among different brokers and the policies are often hard to see through. This of course makes comparing brokers a lot difficult. Many brokers offer fixed spreads that are guaranteed to remain static irrespective of market liquidity. But as fixed spreads are habitually higher than average variable spreads, you are paying an insurance premium during most of the trading days so as to get protected from short-term volatility.

Some other brokers offer you variable spreads relying on market liquidity. Spreads are tighter while there is good market liquidity but they will broaden as liquidity dries up.

Choosing between fixed and variable rates depends on your own trading pattern. If you trade chiefly on news announcements, you may be fortunate with fixed spreads, but only if quality of execution is good.

There are brokers who have different spreads for different clients on the basis of their accounts. Clients making larger trades or those who have larger accounts receive higher spreads, while clients referred by an introducing broker get wider spreads for covering the cost of the referral. Some brokers offer the same spread to all traders.

It can be hard to learn about a company’s spread policy because this information and information on trade execution and order-book depth are difficult to obtain. For this reason, many traders get caught up in the offers they receive and take the words of brokers at face value. This can be unsafe. The only alternative is to try out various brokers or talk to those who have.