Question: Why Fixed spread is wider than floating/variable spread? Who would trade with Fixed spread?
There are generally two types of spread types in the Forex markets, which are Fixed and Floating(variable) spread.
Fixed spread is normally wider than floating spread because traders need to cover extra costs for their brokers in case the inter-bank spread goes wider during trading hours.
A broker will make losses if they offer tighter spread than the original spread provided by the liquidity providers.
The normal fixed spread is around 2 pips, on the other hand floating spread can be offered with even lower than 0.5 pips.
So, who would choose to trade with the fixed spread?
If your broker only offers a trading account with fixed spread, then you wouldn’t have a choice though, many brokers offer both spread types through different trading accounts.
Fixed spread for EA traders
Fixed spread is especially popular for traders with EAs(expert advisers) or other trading programs.
As the spread is fixed, it makes easier to set up the program for the trading condition.
Fixed spread also makes it easier to calculate trading costs and profit/loss.
As majority of Forex brokers mainly offer floating spread and fixed spread is an option, many of you might find the wider fixed spread not convenient.
Check out the list of online Forex and CFD brokers below.
