Question: What is "Zero Spread Widening" in Forex market?
Zero spread widening is an important factor to consider in Forex trading.
When a trader is ready to enter the live Forex market for the first time or whether a professional trader needs to open another trading account, the first thing that needs to be done is to open and fund a live trading account with a reputable broker.
Whilst short listing suitable brokers, a Forex trader must consider whether the candidate broker widens their spreads during volatile market periods.
Volatile market periods can occur due to economic news releases (foreseen or unforeseen), political developments, terrorist acts, natural disasters etc.
Many brokers widen their spreads during volatile market periods in order to minimize their risk from anticipated excessive trade flows from investors seeking to profit from the market volatility.
Therefore, it is fair to say that spread widening is more beneficial to the brokers than the investors.
Traders are essentially being forced to pay a larger premium than usual to the broker in order to enter a trade during volatile market periods.
Zero Spread Widening isn’t really good occasion for traders
As a result the traders are increasing their capital exposure and risk and might not be able to insert themselves in a very profitable trade as the risk /reward ratio is skewed negatively against taking the trade.
It is imperative therefore, that a trader researches and confirms the candidate brokers’ policy during high periods of market volatility and whether there is excessive spread widening.
Traders should feel free to contact candidate brokers and question them directly with regards to this issue if it is not clearly stated on their website or other advertising literature.
Choose your broker carefully
Once assurances have been given by the broker that spreads do not widen excessively during high periods of market volatility, then it is up to the trader to decide whether the responses received are convincing enough to conduct business with that broker.
A candidate broker that offers zero spread widening during high periods of market volatility should be placed high on the shortlist of candidate brokers that a trader might decide to open and fund a live account with.
Essentially, doing business with a broker that has a zero spread widening policy puts the trader in an advantageous position and allows them to capitalise greatly during periods of high market volatility.
Moreover, traders will not miss out on great trading opportunities because they are worried about negative risk/reward ratios that spread widening causes.
To conclude, zero spread widening is a great way of establishing a long lasting relationship between broker and trader as it instills trust and fairness.
