MoneyMakingForex.com

Forex Foreign Exchange Spreads

Email:

Beware the One Pip Spread

Money is a magnet. If there is money to be made, people will show up to make it. And if the money seems to be easy money, amoral people will show up.

Forex brokering is like that. When forex was just starting to explode, many seedy characters got involved. Because of the lax regulations and decentralization, many of them remain. One of the great tactics they use to lure people is the promise of tight spreads.

Since most forex brokers don't charge commissions, they take a cut of the spread. On a one pip spread, there is no place to take a cut. There's no room. Yet, the brokerage house must make money to stay in business. How do they do it?

Shade That Pip A Little More

How do they make a profit without taking money from the spread? They quote you a price that isn't quite accurate. It's the hidden spread. Let's say the price is at 1.2000/1.2003. Your broker is quoting to you 1.2002/1.2003. You go long at 1.2003.

Price goes up to 1.2007/1.2010. You are quoted 1.2009/1.2010. You decide to exit. However instead of getting filled at 1.2009 like you were quoted. You get filled at 1.2007 the real price. There's your hidden spread. Shade that pip baby!

Honest Small Spread Brokers

So, in general, you want to stay away from small spreads. At the same time, you don't want to pay large spreads as that will make being profitable difficult.

Will the honest brokers please stand up? Is there such a thing in the foreign currency exchange jungle? Do real 1-2 pip spreads exist?

Yes they do. Although you will never see a true 1 pip spread, you can get from 1.5 to 2 pip spreads from honest brokers. Here are some that are worthy of mention. Just so you know, I'm not an IB for any of them (or any broker for that matter). I'm just telling you so you can have a shot at making money in your trading (it's hard enough as is, you don't need your broker against you too).

OandA.com. This company offers very tight spreads when volume is high (as low as 1.5 pips). Their spread widens when volume is low (i.e. when hardly anyone is trading). Five stars. *****

InterbankFX.com. You can use the very popular (and free) MetaTrader charting package with this company. On the pairs with the heaviest volume, they offer 2 pip spreads. Four stars. ****

InteractiveBrokers.com. You have to have a $25,000 dollar account to trade with them. They offer a 1 pip spread plus commission (which works out to about half of a pip). Very respectable company. Four and 1/2 stars. ****1/2