What are zero-spread accounts?
Zero-spread accounts are trading accounts that have no difference between the bid and ask price - or spreads that average close to zero pips. Such accounts allow traders to know in advance what their entry and exit levels will be when they open positions.
What does this mean for traders? Zero spread accounts are helpful for calculating non-trading losses (such as slippage) and are ideal for some forex strategies, such as high-frequency scalping and day trading. Zero spread accounts also offer new traders the opportunity to try out forex trading without being exposed to high transaction costs.
Pros & Cons of Zero Spread Accounts
Pros:
- Changing direction can be expensive. If you have an open long position, for example, and decide you want to change the direction of your trade to go short, it can be less pricey to do so with a zero spread account - compared to paying a spread to close and reverse your trade.
- Sometimes, every little bit counts. Some strategies - like scalping or high-frequency trading - are mostly (or solely) based on latency (or, pricing delays that cause arbitrage), and require the lowest costs possible in order to be profitable.
Cons:
- Zero-spread doesn't mean zero-cost. Don't forget; forex brokers have to cover their costs and make money, and they'll still find ways to do so - with fixed commissions, larger deposit requirements, tighter margin calls, and other tactics designed to make up for their zero-or-low spread offers.
- Spreads that "start" at zero don't always stay there. The potential always exists for the spread to widen - even in a zero spread account, and even if the account is commission-free.
What is the spread in forex?
Typically measured in a unit called a "pip," the spread communicates the difference in price between the rate at which you buy (known as the "ask price") a currency pair and the rate at which you can sell (known as the "bid price").
When trading in financial markets there will always be a bid/ask spread, even if it is very small (or even zero). It's always important to be aware of the spread when you are trading, and it's also important to remember that the spread is a type of trading cost that you may incur even if you are using a commission-free trading account.
How do zero-spread accounts work?
In theory, zero-spread accounts can offer traders the chance to compute their executions precisely, without having to navigate the issue of tightening or widening spreads. The reality, however, is that your realized effective spread is what really matters - not just the advertised spreads.
For example, say you have an open long position, and you've decided you want to change the direction of your trade to go short. If you have a zero-spread account, it'll probably be less expensive to do so, because you won't be paying a spread to close and then reverse your trade. Traders will often change direction during significant news events.
Imagine you find yourself trading on the wrong side of a USD/JPY move during a huge fundamental data release, like the Rate Decision of the Bank of Japan. During such a volatile market event (and other momentous situations), having a zero-spread account can allow you to change your trade bias without sinking your money into the spread.
That being said, any savings you make in the spread might end up being minuscule and can be quickly offset by the losses you'd sustain if the market moves abruptly against you. Your broker's execution quality (and any applicable fast-market trading policies) must be taken into consideration - not just the spread, or your broker's per-trade commissions.
Are low spreads good in forex?
Many brokers advertise low spreads, but their actual (effective) average spreads may be far worse in reality.
While spreads are an important factor in determining your trading costs, it's also important to consider the overall execution type, quality of execution, as well as per-trade commissions. If a broker has questionable execution methods (or charges steep commissions), the execution will end up being poor and will likely end up costing you more - even if the spread happens to be low.
Take it from us; the best brokers for zero-spread trading (or low-spread trading) also deliver a great selection of account types, offer high-quality execution methods, and feature low commissions - in addition to zero-or-low average spreads.
Is there a forex broker with 0 spread?
Even if a broker is a market-maker that establishes their own pricing, a true zero-pip spread is exceptionally rare - even at the interbank market level, where large banks and inter-dealer brokers (IDBs) trade.
Often, when a broker offers a zero-pip spread it is tied into some kind of promotional offer or marketing campaign. These promotions may not reveal the true cost of trading with that broker.
It's important to think beyond the spread when choosing which broker is right for your needs. Always consider your broker's execution quality, as well as the kind of trading strategy you plan on adopting. Most importantly, check to see if the broker publishes any recent average spreads for the currency pair you want to trade. That way you can judge for yourself whether their spreads are truly low.
What forex brokers have the lowest spreads?
When it comes to commissions and fees, the best forex brokers in 2023 with the lowest overall effective spreads are as follows:
- Tickmill - Best overall for low costs
- CMC Markets - Best web trading platform, excellent education
- Interactive Brokers - Best for professionals, excellent pricing
- Capital.com - Great for beginners, easy to use
- IC Markets - Best overall for MetaTrader
- FP Markets - Full MetaTrader suite, competitive pricing
- IG - Excellent education, most trusted
Which forex broker has the tightest spread?
After conducting our own rigorous research, we determined that Tickmill features the overall tightest spreads in 2023. To calculate the effective spread, we factor the average spread (where available) and any per-trade commissions across broker account types.
Tickmill's Pro account features low average spreads and per-trade commissions, resulting in tight effective spreads. Those effective spreads drop even further in Tickmill's VIP account, where commissions are slashed in half.
Tickmill's listed average spread data for the month of September 2021 (for the EUR/USD) came to 0.07 pips on its Pro account (which only requires a $100 deposit to get started). The resulting effective spread at Tickmill comes to 0.47 pips, after including a per-side commission of $2.00, or, roughly the equivalent of 0.4 pips per round-trip (the opening and closing of one trade is referred to as one complete "round-turn" or "round-trip").
Meanwhile, Tickmill's VIP account brings the effective spread down to 0.27, with the only caveat being that you must maintain a minimum balance of $50,000 to access this superb VIP pricing.
What forex account types have lower spreads?
Forex account types vary from one broker to another, but - on average - you'll find that commission-based accounts (or, accounts that offer agency execution) tend to feature the lowest spreads.
Commission-based accounts are often referred to as Electronic Communication Network (ECN) or no-dealing-desk accounts. In these cases, your broker acts as an agent and sends your offer to other market-makers for execution. With agency execution, the market-maker establishes the spread and your broker only charges a commission (though your broker may also be receiving a rebate or markup on the spread from the liquidity provider).
BrokerNotes.co 2023 Overall Rankings
To recap, here are our top forex brokers for 2023, sorted by Overall ranking.
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Part of our testing process involves in-depth research into commissions and fees. We dive into each broker’s trading costs, such as VIP rebates, inactivity fees, custody fees, bid/ask spreads (we always strive to determine the average spreads for each broker to better serve our readers), and a variety of other fee-based data points.
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