💡 Key Takeaway
Spreads are the hidden cost of trading. A difference of just 0.5 pips can cost you thousands over a year. Understanding spreads is essential for long-term profitability.
What is a Spread?
The spread is the difference between the Bid price (what you can sell at) and the Ask price (what you can buy at). It is the broker's primary way of making money.
Example:
- EUR/USD Bid: 1.1000
- EUR/USD Ask: 1.1002
- Spread: 2 pips (0.0002)
When you open a trade, you immediately start with a small loss equal to the spread. You need the price to move in your favor by at least the spread amount just to break even.
Why Low Spreads Matter
The Math Behind It
Let's say you trade 1 standard lot (100,000 units) of EUR/USD:
- Broker A: 2 pip spread = $20 cost per trade
- Broker B: 0.5 pip spread = $5 cost per trade
Difference: $15 per trade.
If you make 100 trades per month:
- Broker A: $2,000 in spread costs
- Broker B: $500 in spread costs
Annual Savings: $18,000 just by choosing a broker with lower spreads!
Who Benefits Most from Low Spreads?
- Scalpers: Make dozens of trades per day. Every pip counts.
- Day Traders: High trading frequency means spread costs add up quickly.
- High-Volume Traders: Trading multiple lots amplifies the cost difference.
Understanding Account Types
Standard Account (Wider Spreads, No Commission)
- Spread: 1.0 - 2.0 pips on EUR/USD
- Commission: $0
- Best For: Beginners, casual traders
ECN/Raw Account (Tight Spreads, Commission)
- Spread: 0.0 - 0.2 pips on EUR/USD
- Commission: $3 - $7 per lot (round turn)
- Best For: Active traders, scalpers
Which is Cheaper? For high-volume traders, ECN accounts are almost always cheaper despite the commission.
How to Compare Spreads
1. Check Average Spreads (Not Just Minimum)
Brokers often advertise "spreads from 0.0 pips" but the average spread during market hours is what matters.
2. Consider Market Conditions
- During News: Spreads widen significantly (can reach 10+ pips).
- Asian Session: Spreads are typically wider due to lower liquidity.
- London/NY Overlap: Tightest spreads (highest liquidity).
3. Look at Multiple Pairs
Don't just check EUR/USD. Compare spreads on:
- Major pairs (EUR/USD, GBP/USD, USD/JPY)
- Exotic pairs (USD/TRY, EUR/ZAR)
- Commodities (Gold, Oil)
What Affects Spreads?
1. Market Liquidity
Highly liquid pairs (EUR/USD, USD/JPY) have tighter spreads than exotic pairs.
2. Broker Type
- ECN Brokers: Pass spreads directly from liquidity providers (tighter).
- Market Makers: Add markup to spreads (wider).
3. Time of Day
- London/NY Overlap: Tightest spreads
- Asian Session: Wider spreads
- Weekends: Markets closed, spreads irrelevant
4. Economic Events
During major news (NFP, FOMC), spreads can widen dramatically as liquidity dries up.
Finding a Low Spread Broker
When searching for a broker with competitive spreads, look for:
- ECN/STP Execution: Direct market access typically offers tighter spreads
- Transparent Pricing: Clear information about average spreads, not just minimums
- Fast Execution: No requotes, minimal slippage
- Competitive Commissions: If using an ECN account, reasonable commission rates
Our AraciKurum.org Approved Broker offers:
- EUR/USD: Average 0.1 pips on ECN accounts
- GBP/USD: Average 0.3 pips
- Gold (XAU/USD): Average 10 cents
- Fast Execution: No requotes, minimal slippage
- Competitive Commission: Transparent and fair pricing
Tips for Minimizing Spread Costs
- Trade During High Liquidity Hours: London/NY overlap offers tightest spreads.
- Avoid Trading During News: Spreads widen significantly.
- Use Limit Orders: Place orders away from current price to avoid paying full spread.
- Consider ECN Accounts: If you trade frequently, the commission model is often cheaper.
Common Spread Myths Debunked
Myth 1: "0.0 Spread Means Free Trading"
Reality: ECN brokers charge a commission. The total cost (spread + commission) is what matters.
Myth 2: "All Brokers Have Similar Spreads"
Reality: Spreads can vary by 1-2 pips between brokers, which adds up significantly over time.
Myth 3: "Spreads Don't Matter for Long-Term Traders"
Reality: Even swing traders should care. A 2 pip spread on a 100 pip move is still 2% of your profit.
Conclusion
Understanding spreads is fundamental to trading success. While low spreads are important, they should not be the only factor when choosing a broker. Consider regulation, execution quality, platform features, and customer support as well.