Best Lowest Spread Forex Brokers 2021
Knowing the best lowest spread forex brokers can be critically important to your profitability in the forex market. Forex transaction costs per trade are typically low with almost all forex brokers, but many novice forex traders oversee the bid-ask spread relevance. Unfortunately, those relatively small spread costs add up over time and can eventually become an extensive amount of money and drastically reduce your apparent forex profits.
Getting the lowest spreads possible is especially important if you’re a day trader scalping multiple trades per day since more trades mean more fees.
Also, there’s simply no reason to pay higher transaction costs when there are plenty of excellent forex brokerage firms offering low spreads on the major currency pairs. This article will guide you on finding the forex broker offering the best deal for your trading.
The Benefits of Low Spreads in Forex Trading
To illustrate the enormous difference in your trading profits that even a small difference in bid and ask spreads can make, let’s look at an example of a forex broker that offers an average bid and ask spread of 2 pips.
If the spread for trading EUR/USD is 2.0, then it means that the ask is 2 pips higher than the bid. Since the EUR/USD has 5 digits after the comma, this looks like that: Bid 1.16810 Ask 1.16812
Example: Let’s say you typically trade mini-lots where, on major currency pairs, each pip is worth $1.00 US. Paying a 2 pip spread both getting into and out of each trade means that every trade costs you $4. Well, first of all, that means that the currency pair you’re trading has to move 4 pips in your favor before you can just manage a breakeven trade, 5 pips before you’re actually making a net profit. Now, let’s assume that you’re a day trader and that you typically make 3 or 4 trades a day. At 4 trades per day, you’re paying $16.00 every day in spread trading costs. That’s bad enough, but now let’s look at what your annual forex trading costs would be. There are about 220 trading days in every year if you trade Monday through Friday. So, what’re 220 times $16? – $3,520 – Ouch!
Understand clearly what that means for your forex trading: it means that you’ve got to make over $3,500 every year before you’re making any profits from your trading. Now, let’s look at the difference that using a forex broker offering an average spread of 0.5 pips would make. With that broker, your annual spread costs would only be $880. So covering less than $1,000 in yearly trading costs is a lot easier to do than covering more than $3,500 in spread costs.
The Best Forex Brokers for Low Spreads
Now clearly understand the benefits of using low spread forex brokers.
Unfortunately, I can’t give you a definitive list of forex brokers offering the lowest spread for two reasons:
It’s a good idea to periodically check what brokers are offering the lowest forex trading spreads for two reasons:
- The average spreads that different brokers usually offer change over time, so today’s lowest spread broker may not be the lowest spread broker tomorrow.
- New forex brokers are opening all the time, and one of those new brokers may offer better average bid and ask spreads than whatever forex broker you’re currently using.
If you can get significantly lower spreads, it may be worth moving your currency trading account.
When looking at different forex brokers, you’ll find some that charge fixed spreads and some that charge variable spreads.
The lowest spreads are typically available, with ECN brokers offering variable spreads. As a result, ECN (electronic clearing network) brokers almost always offer lower trading costs than dealing desk brokers.
Here is a brief description of forex brokers that are currently among the lowest spread brokers:
Tickmill is a forex broker that uses the MetaTrader 4 and MetaTrader 5 trading platforms (For comparison and MetaTrader platform insights, consider reading our MetaTrader review). They offer clients trading forex pairs, CFDs and cryptocurrencies. Tickmill offers typical spreads as low as 0.0 on major currency pairs such as EUR/USD and GBP/USD, while the typical spread during normal market hours is towards 1 pip. In addition, Tickmill charges a round turn commission fee of up 1 pip per side per 100,000 traded within the VIP account and 2 pips per side per 100,000 traded with the Pro account. The Classic account has no commissions at all but a minimum spread of 1.6 pips for all currencies.
Pepperstone usually shows up on any current list of low spread forex brokers, which tells you that they are consistently at or near the top in offering the lowest spreads. Pepperstone offers trading through the MT4 and MT5 platform or the cTrader platform. Two account types are available at Pepperstone. The Razor account for scalpers and algo-traders comes with institutional grade spreads with no markups starting at 0.0 – 0.3 pips and $7 commission per 100k traded. The standard account, primarily used by new traders, comes with a 0.6 spread minimum but $0 commissions.
3. IC Markets
IC Markets also offers a choice of forex trading platforms. The MetaTrader platforms and cTrader trading platforms are available for forex and CFD trading. Their raw account offers variable spreads as low as zero, plus a commission charge of $7 per round turn per standard lot ($100,000 trades). The standard account has no commission fees, but the spreads offered are slightly higher – starting at around 0.6 pips.
Axiory offers access to more trading markets than most forex brokers, including trading in stocks, ETFs, and precious metals. Besides MetaTrader 5 and MetaTrader 4, also the cTrader platform is available. Axiory offers multiple account choices that range from charging only spreads (Standard Account), to lower spreads plus commission (TERA Account), to zero spread trading with only a commission charge (ALPHA Account). The structure of trading accounts is complex, and it needs further analysis depending on your trading style to choose the best account for low total costs.
FxPro is another broker that offers trading in a wide range of financial securities beyond just forex trading, including stocks, futures, cryptocurrencies, and precious metals. Like Axiory, FxPro offers MT4, MT5 and cTrader trading platforms and many different account types that charge spread only, spread plus commission, or commission only, with zero spreads. Its spread only accounts charge variable spreads averaging around 1.5 pips.
You can see from the information provided on these brokers that forex brokers have three basic forms of trading costs that you may be charged
- Spread only
- Spread plus commission
- Commission only
Which is the best deal?
The answer to that will depend largely on the type of account you open and on how much (standard lot, mini-lot, micro-lot) and how often you usually trade.
Understanding Zero Spread Forex Trading Accounts
When a forex broker is advertised as a “zero spread forex broker”, that doesn’t mean they offer free trading. Usually, zero spread trading means variable trading spreads starting as low as zero. If a broker offers zero spread trading all the time, then they’re going to be charging commission fees. No broker works for free.
Note: Calculating the total cost of trading currency pairs is easier if a commission per trade is charged instead of a variable spread. While the spread is not easy to track for executed trades, commissions are usually shown separately within the brokerage account reports.
Other Factors to Consider Besides Lowest Spreads
Finding a low spread forex broker shouldn’t be your only consideration in choosing a forex broker. There are several other factors to consider. Number one is whether the broker is trustworthy. It’s a good idea to read multiple online forex broker reviews before opening an account with a brokerage firm you’re unfamiliar with.
Depending on how much trading capital you have to start with, the minimum deposit to open an account may also be an important consideration for you, along with the amount of leverage offered. Forex brokers offer leverage ranging from 30:1 all the way up to 1000:1.
Another consideration, and one that can lower your net trading costs, is that many forex brokers offer trading rebates, usually based on the amount of trading that you do. However, rebates may only be available with some of the various account types that a broker offers.
One point to consider is that if you trade in an account that offers pure zero spreads – only commission fees – then it’s much easier to keep up with what your transaction costs actually are since it’s a fixed price for every trade.
One more thing: If you frequently trade a minor currency pair, such as USD/SGD, then you definitely want to check the bid and ask spread usually offered on that pair, as the spreads offered on minor currency pairs are typically much higher than the spreads offered on the major currency pairs.
Another thing to watch for is the difference in average spreads on the major pairs EUR/USD and GBP/USD. Some brokers charge very low spreads on trading EUR/USD but significantly higher spreads for trading GBP/USD. It can happen that you trade accounts where the average EUR/USD spread might be half a pip, but the average GBP/USD spread two pips or higher. It can be worth it to have a different account for different currencies to reduce the costs to a minimum.
Best Lowest Spread Forex Brokers Conclusion
Keeping your costs of forex trading at a minimum will greatly improve your overall profitability in forex trading. It’s worth taking the time to look at several brokers to find the lowest spread forex broker where you can get the best deal, taking into consideration what type of account you’re going to open, your trading strategy in regard to how frequently you trade and at what level, and whether the broker offers trading rebates.