In the Forex markets, a trader needs the best spread offers from Forex brokers on EURUSD and other majors as opposed to a high spreading. These tight price offers in form of low spreads reduce the cost of trading Forex versus other assets. Over the long term, this saving becomes a significant advantage for Forex traders. Forex Brokers typically make their money on the spread. Conventionally, the smaller the account type, the wider the spread becomes as brokers would like to compensate business by offering a wider spread.
EURUSD Spread feed advertised by most Forex brokers are calculated from a buy and sell price indicated to them by a liquidity provider/market maker. Typical liquidity providers includes global banks like the Deutsche Bank and Barclays Bank Plc; big financial institutions like the Morgan Stanley.
Charging up to maximum three pips on highly liquid and traded currency pair, like EURUSD for example could be treated as market practice. Charging higher spreads for currencies with high liquidity would not be favored by Forex traders.
Spreads are expressed either as a fixed spread in certain amount of pips, or variable spreads in cases where there is higher market volatility.
Top Rated Forex Spread Brokers
In the course of your search for a broker, you will come across terms like “STP”, “ECN”, “NDD” and “Market Maker”. All these terms are in fact used to describe the business model which the broker is operating by.
The business model of the broker is important as this will affect the kind of spreads that you will receive and whether the spread will be fixed or variable, tight or wide.
Forex brokers offers traders two major types of execution models, Dealing Desk and No Dealing Desk (ECN + STP).
Dealing Desk Forex Spread Brokers
Market makers are processed through a dealing desk within their company. A dealing desk broker takes the other side of the trade to you, meaning when you open a position, the trade will be executed by the broker and they are then exposed to the spread. In simple terms, if you win, they lose and if you lose that trade then they win.
ECN Forex Spread Brokers
EURUSD Spread from a Non-Dealing Desk Broker are gotten straight from a third party liquidity provider. There are two kinds of NDD broker (ECN and STP). They are both essentially the conduit between you the trader and the market maker or liquidity provider.
Liquidity providers will transmit their pricing to the ECN/STP broker together with the volume which the quote is valid for. The ECN/STP will in turn distribute the pricing to traders/market makers linked to the system.
Typical EURUSD Spread on Standard Forex Brokers Accounts might range from 1-2 pips. Many brokers, however, reward their standard account clients with tighter spreads, and some offer premium accounts with even more favorable spreads.
EURUSD Spread on Micro Forex Brokers Accounts are typically wider since micro accounts are the smallest. Investors are expected to see typical spreads of 2-3 pips, though some brokers do offer the same spreads on both standard and micro accounts.
It is important to note that there are also regulated brokers that are not charging commission on trades, but in this case traders can expect to have wider currency spreads offered.
One more thing, some Forex spread brokers state in their fine print that during times of increased market volatility, such as during the release of important economic or political news, the spread charged on currency pairs like EURUSD on Forex micro accounts can be raised.