The trading market is complicated. It involves many stakeholders and requires special techniques in order to be successful. Nowadays, with the appearance of new instruments and models, the situation gets even more serious.
This is especially the case with Forex brokers and trading transactions. Predominantly, this is because people should understand exactly how it all works and which costs exist in this market. This is where spreads come into the picture. They usually appear when investors go after securities and other similar financial instruments. And they can be fixed and variable. Basically, every time traders make a trade, they pay a difference between the price for selling and buying an asset. Even if they find a way around some other costs, this is like the transaction costs that everyone has to pay. Due to this, some Forex brokers even refer to the spread as a ticket for entering and trading on the market. In fact, trading instruments have either fixed or variable spreads, so there is an option to choose between the two.
Are you interested in learning more about these inevitable players in your transactions? Here we’ll elaborate on this topic further and help you see which spreads are better. So, let’s go!
Why People Go For Fixed Spreads
As their name suggests, the fixed spreads stay the same over a long period of time. They aren’t dependent on the changing conditions on the market. This is due to the fact that they are set by the Forex brokers. Having this mind, the first advantage that they have is the chance to plan your costs ahead of time. Since you’ll know that they remain the same, you’ll be able to incorporate them into your budget at once. This is useful especially to traders of news where the prices often spike up or fall down quickly.
Connected to this, the fixed spreads increase transparency. How? It’s simple. No matter the trading amount, the time or liquidity, Forex brokers aren’t able to turn the spreads in their favor and play with their value. Every time the trade happens, the investor is aware of how much they have to pay in this regard.
Aside from this, these spreads are desirable during short-term Forex trading. Moreover, this represents making multiple trades during a short period. And with the fixed spreads, the whole process is simplified and more predictable as the costs are already well-known.
What Makes Variable Spreads Interesting
On the other hand, variable spreads are more recommended by brokers in the Forex markets. The logical explanation behind his is that since they are changing, people can sometimes pay less and gain more. Yet the situation can always go the opposite way, which is a risk investors make when they decide to go for this option.
More precisely, the value of the spreads varies when the demand, supply or some other activity on the market fluctuates. This spears as a result of the larger gap between the buying and selling price. Therefore, it’s clear that all traders can’t receive equal benefits from these transactions. While the variable spreads are cheaper in comparison with the fixed ones when the liquidity is high, they can become way more expensive when the market is volatile. For this reason, it all comes down to some other factors that we will discuss below.
How to Make the Choice
Firstly, it’s important to understand whether you’re a beginner trader or a professional with years of experience behind you. In the first case, it’s not really recommended for beginners to start with variable spreads. This is because the changing costs can deteriorate their success if they don’t know exactly what they’re doing. Still, this in no case means that they can’t at least try trading with them.
Considering this, the traders that are just starting out prefer to have steady spreads that are predictable and can be entirely planned. Understandably, that’s mostly when the fixed spreads are more desirable.
In instances like trading with news events and similar activities that are rapidly changing, people decide to try their luck with variable spreads. Traders like scalpers and similar that trade at high speed are required to spend money on spreads frequently. That’s why they pick these spreads to try and get the cheapest packages on the market and save more money in the long run.
However, there isn’t a written rule about all of this. At the end of the day, the real choice falls on the traders. Based on their preferences, budgets, experience, and knowledge of the market, they are free to examine which option brings them more money and stick with it. In general, traders that aren’t on the market often have no real troubles with this. Whereas the high-speed ones face a real dilemma in terms of choosing the spreads that will match their trading habits and system.
All things considered, fixed and variable spreads represent costs for traders that want to participate in the Forex market. After seeing what they represent and how to differentiate them from one another, which option seems better for you? Are you a safe-plyer or a risk-taker in the trading world? Share your thoughts and experiences with us here in the comments.
Meta description: Are you wondering whether to go for fixed or variable spreads while trading on the Forex market? Don’t worry as we are here to help you with this. We will look into the things people like about each option and how to make the final choice. Enjoy!