Most online forex sites don't charge an out-right commission for
trades, however their gains are hidden in the difference between the bid and ask
prices – what is called 'Bid/Ask Spread' or 'Market Spread'. The best online
forex sites offer a 2 pips spread which is considered in the industry to
be very good (Pip is the smallest price increment in the last digit in the
rate).
The 'pips spread' is where forex sites make their profits, and this is where
you, the trader, are paying them for their services.
To make things even more complicated, each currency pair can have its own spread
– with major currency pairs usually getting a better spread than the less
popular currencies. Many online forex brokers offer a 2 pip spread for
popular currency pairs like EUR/USD, USD/JPY, EUR/JPY, but their spreads for
other currency pairings can be 3 pips or more.
If you are trading mostly the major currencies, you can easily compare the
spreads offered by the brokers, however if you wish to trade in less obvious
currencies, where some players have earned huge jackpots in the past due to
their higher volatility, you will have a very hard time trying to find the
online forex site with the best spread on offer.
The difference between a 3 pip spread and a 2 pip spread may sound
minor at first, but experienced traders know that it can have a huge effect on
their profits, and can even make the difference between earning big money on a
trade, and just breaking even, depending on the size of the trade of course.
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