When choosing a Forex broker, the first thing that comes into your mind is spread. A Forex trader always demands low spreads from a broker to maintain his efficacy in trading. Do you live in Pakistan and searching for the best Forex broker with low spreads? Then keep reading to get the right guidance on spreads and the best brokers for your trading.
What is Spread in Forex?
Spread is the difference in points between the selling price and the buying price. The spread represents the cost of brokerage services and replaces the transaction fees.
There are fixed spreads and variable spreads. Fixed spreads maintain the same difference of pips between the buy and sell prices and are not affected by market changes. As soon as a trader opens a trading position, its value becomes negative, while the size of the loss is equal to the spread size. For example, when buying three standard lots of the EUR / USD currency pair with a rate of 1.3700 / 1.3702, the size of the initial loss will be 3×2 = $ 6. To determine this amount, we multiply the size of the spread by the cost of 1 pip. The rate must go up 2 points for our trade to break even, or more to make a profit.
Most dealing desk brokers offer fixed spreads. Usually, such brokers offer three pips for major spread for major pairs and seven pips for crosses. This is quite costly, and there are many other disadvantages of dealing desk brokers like slippage, requotes, stop hunting, etc.
Variable spreads fluctuate (i.e., increase or decrease) depending on market liquidity and volatility. Usually, ECN brokers offer variable spreads. Such brokers pass the orders to the market, and traders get the raw spreads from the market. The spread of ECN brokers starts from as low as 0.1 pips. However, the drawback of such brokers is too high spread during news events or low liquidity time. Moreover, the brokers may charge you a fixed commission per lot.
Which spread is better: floating or fixed
It depends on the trading strategy. If a trader trades in the medium term, opens few positions, and takes profit from 50 points or more in the transaction, then the size of a fixed spread of several points will not play a significant role.
For a scalper who makes many trades a day, a floating spread may be just right since a trader will be able to choose the entries to trade with its minimum value.
In the case of trading on the news, when, due to increased volatility, the size of the spread expands significantly at the moment, a fixed spread will allow you to get more profit from the market, while a floating one can take its lion’s share.
Why are spreads important in Forex trading?
Why are professional traders looking for brokers with exactly these trading conditions? The answer is simple: the spread is the first thing a trader pays when opening a position, and since Forex trading pursues the goal of enriching the trader, every cent is important here. How to choose the best broker and how to increase your profits by decreasing the trading costs are the hot topics to be discussed.
Day Traders
Let’s assume that you are a day trader and you trade crosses mostly. The spreads in crosses and minor pairs are quite high, and it may eat a fraction of your profit. So, if you trade GBP/AUD pair with a potential profit target of 40 pips, then seven pips spread, is 17.5% part of your profit.
Imagine if you take one position every trading day. You pay 154 pips to the broker in a single month. No matter you win or lose, the broker will charge this spread in any case. As an efficient trader, your role is to minimize this assumed cost of 154 pips. The only way is to choose the forex broker wisely.
Scalpers and High-Frequency Traders
If you are a scalper or a high-frequency trader using auto trading, then spreads impart a very significant role in your trading. Your trading cost may escalate a lot if you choose the wrong account type or the wrong broker. Scalpers and high-frequency traders open and close tens of positions every day. So, the difference of half a pip per position may cost you more than a hundred pips extra for a single month. Scalpers and high-frequency traders should not opt for a cent account or micro account for their trading as trading conditions, including spreads, are not favorable for them.
Best Forex Brokers in Pakistan
Based on our research, we propose some of the best Forex brokers in Pakistan that offer as low as zero spreads, fair trading conditions, and above all, they are regulated.
FXTM
FXTM is a licensed and well-regulated broker around the world. It is regulated in the UK, South Africa, Belize, Cyprus, and Mauritius. They also have an impressive list of awards.
Characteristics
- Allows hedging
- Quick and easy account opening
- Low minimum deposit
- Large selection of educational tools
- Low commissions for CFDs on stock indices
- Spreads from 0.1 pips for a standard account and 0 pips for ECN-based trading accounts
XM
XM Global was founded in 2017, and it offers over 1,000 financial instruments, including Forex trading, Stock CFDs, Commodity CFDs, Equity Index CFDs, Precious Metals CFDs, and Energy CFDs.
Characteristics
- Allows scalping
- Offers negative balance protection
- Low minimum deposit
- Used by 70,000 traders
- Allows hedging
HotForex
HotForex provides access to over 150 Forex trading instruments, commodities, indices, stocks, bonds, and cryptocurrency CFDs.
They have six main trading accounts to choose from, and each account type offers commission-free currency pair trading.
Characteristics
- Technical innovation
- Received numerous industry awards
- Large selection of markets
- Offers negative balance protection
- Additional civil liability insurance
- Many premium MetaTrader tools offered
AvaTrade
Founded in 2006, AvaTrade offers over 250 instruments that include over 60 currency pairs, major stock indices, cryptocurrencies, commodities, bonds, ETFs, and individual stocks.
AvaTrade is highly regulated in the British Virgin Islands, Europe, Japan, Australia, and South Africa.
Characteristics
- A range of automated trading platforms and compatibility with advisors
- To enhance security, customer funds are kept in segregated accounts
- Trade from desktop, tablet, mobile, and over the Internet with MetaTrader 4, MetaTrader 5 and AvaTradeGO
- Competitive spread offer
- Shopping sites in over 20 languages
FP Markets
FP Markets is an Australian Forex and CFD broker founded in 2005.
The broker has been regulated by the Australian Securities and Investments Commission and the Cyprus Securities and Exchange Commission and offers MT4, MT5 platforms.
Characteristics
- When trading currencies, the leverage is 500:1
- Direct Market Access (DMA) offering
- ASIC & CySEC Regulated Broker
- Demo account for beginner traders
- Over 50 currency pairs to trade
Exness
Exness Group was founded in 2008 in St. Petersburg, Russia, and is licensed by the Seychelles Financial Services Authority (FSA) and the Cyprus Securities and Exchange Commission (CySEC).
Characteristics
- Tight spreads from 0.1 pips
- No hidden fees or charges
- Instant withdrawal of funds
- Client funds are held in segregated accounts
- Tight spreads
- Copy-trading system
OctaFX
Founded in 2011, OctaFX is part of Octa Markets and has a subsidiary in Cyprus called Octa Markets Cyprus Ltd. The company is based in Jakarta, Indonesia, with offices in Saint Vincent and the Grenadines.
Characteristics
- First deposit bonus
- Unlimited demo account
- Offer spread most competitive spreads in the forex industry
- Excellent advanced technology
- Extensive research and educational resources
- More than 300,000+ traders around the world
Alpari
Alpari was founded in 1998, reopened in 2014, and is regulated by the Financial Services Commission (FSC) of the Republic of Mauritius.
Characteristics
- Maximum leverage 1,000:1
- Over 60 currency pairs and crosses available for trading
- Low minimum deposit
- Choosing between ECN Execution Models and Market Maker
- Regulated by Offshore Industry Center (Mauritius Financial Services Commission)