How You Pay the Best Forex Broker
One point which separates most forex brokers from brokers on any other financial market is the lack of commission fees. The fact that you do not have to pay commission fees is one reason why many new retail traders look at the forex market. Of course, while the lack of commission fees is advantageous new traders fall into the trap of not getting the best deals from forex brokers. You need to be able to evaluate the fees you pay the broker when you look for the best forex broker.
The Best Forex Broker Commission Schemes
There are three different ways that forex brokers change fees for their service. These are through fixed spreads, through variable spreads and through a commission based on the spread percentage. Many new traders wonder what the best choice is and settle on the fixed spread because then you know exactly what is expected. However, there are other things that should be considered when looking at these schemes.
Fixed spreads can be helpful because they do not change with market volatility. However, this is also a very bad thing because there are times when you can get a lower spread because the market is volatile. Brokers charging fixed spreads may lock the spread at three pips. However, the market may change and the actual spread may only be 1 pip. At these times you will lose out because of the fixed spread. There are certain trading strategies that need a fixed spread to work so you should also take this into consideration.
The variable spread changes depending on the market volatility. At one point the spread may be 1.5 pips and at another time it could be 5 pips. The spread is also affected by the currency pair because the major currencies generally have lower spreads as they are more volatile.
Commissions on the spread are not something that you often find with retail brokers. The reason for this is that the retail trader does not trade large enough quantities to make this worthwhile for the broker. These commissions are usually base on tenths of a pip and need large movements to be viable.
The Effect of the Commission
Most new traders think that the better the spread they are getting the better the overall service of the broker. This is not actually the case as there are other factors that affect the overall service of the broker. You need to take these other factors into account when you look for the best forex broker.
One think you should be aware of is when brokers talk about the interbank market. Many brokers try to get your business by saying that they are linked to the interbank. This is actually impossible as the interbank only allows banks to trade. Brokers may be linked to a bank but they are not able to use the interbank. Brokers linked closely to banks generally offer the best spreads because the bank offers them better rates due to the low prices of the interbank.
You need to consider all the parts of the broker before you sign up for an account. You have to think about what they can offer you and how this affects you trading.
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