How to easily find the best spread brokers?

By | September 18, 2019

How to easily find the best spread brokers?

Scroll right to the bottom to view how to use myfxbook.com/forex-broker-spreads to easily find the best spread brokers.

As a retail trader, I believe finding the best spread brokers should be one of your main concerns because liquidity is not going to an issue unless you are trading 5 to 10 lots at one go.

Let’s face it, most of us don’t have the capital to do so and trading large sizes while being under capitalized is a recipe for disaster.

As a guide, we should take a trade up to a maximum leverage of 5:1 to maximize our chances of being successful based on an FXCM study in 2015. Read the article here. In summary it states that traders who trade up to a maximum size of 5:1 or less have the highest winning percentage, as per the FXCM graph below.

Best Spread Brokers
Leverage vs Win rate. Source: FXCM accounts excluding Eligible Contract Participants, Clearing Accounts, Money Managers, and Hong Kong and Japan subsidiaries from 3/1/2014 to 3/31/2015. https://www.fxcm.com/uk/education/traits-successful-traders/#ch2-1

What does trading to a maximum leverage of 5:1 mean? Basically, if you have $10,000 deposited, you can trade up to a maximum of 0.5 lots (equivalent to $50,000).

Once again, the data shows that traders who deposit more than $10,000 in capital have higher win rates than traders who deposit less. This is mainly because the trader who has $10,000 in capital uses less leverage than the trader who has less capital.

Best Spread Brokers
Deposit vs Win rate. Source: FXCM accounts excluding Eligible Contract Participants, Clearing Accounts, Money Managers, and Hong Kong and Japan subsidiaries from 3/1/2014 to 3/31/2015. https://www.fxcm.com/uk/education/traits-successful-traders/#ch2-2

So coming back to the point on spreads being your main concern choosing your broker, I just want to highlight that other criteria are also important, such as:

  1. Country of Regulation
  2. Deposit insurance
  3. No deposit or withdrawal fees
  4. Trading account denominated in your home currency (i.e. SGD denominated trading accounts)
  5. Effective customer service/support
  6. Good trade execution speed
These are quite a handful, and I will explain my reasoning for each point in another article.
 

If you need a broker recommendation, I would recommend IC Markets, because of their super low spreads, country of regulation (Australia), no deposit or withdrawal fees (via Paypal), has a wide range of account denominations so you can deposit in your home currency, excellent trade support and fast execution.

Disclaimer: I am an introducing broker for IC Markets and the brokers below, but the above are my honest opinion, after using them since 2012.

There are other good brokers who meet most of the conditions above also, like Axitrader, Global Prime and Tickmill.

So why pick the broker with the best spreads?

Because you want to minimize your trading costs. For every 1 lot, every 0.1 pip more spread you pay is equal to paying $1 more in commissions. 

That means $2 less profit for you. Because you pay 0.1 pip more on entry, and 0.1 pip more when you exit. so 2 x $1 = $2.

I know it may not sound like a lot, but it adds up over multiple trades in a month, assuming you trade 30 trades in a month, and as a trader, you should try and place every edge on your side as possible to win, and this includes trading with the lowest possible cost.

Ok, so how do I measure whether a broker has a low spread?

You need to measure the average spread over time, not just the instantaneous spread, since you will be trading at various times during the day, and you want to ensure that throughout all times, the broker has a good spread.

How to find the broker with best spreads​
IC markets 24 hr avg. spread, available for free on myfxbook. Source: https://www.myfxbook.com/forex-broker-spreads/ic-markets-EURUSD-real-spread/2320,1 (please use internet explorer to run, as it requires flash, and doesn't work on chrome)

myfxbook.com/forex-broker-spreads has a very good real-time tool which shows almost every broker’s real time spread, and you can sort it to see which broker has the lowest spread at that time. View the full version here.

Furthermore, you can drill down by clicking on the broker’s spread for the currency pair and investigate what is the average spread over 24hr (or whatever time period you like), and see which other broker has an average spread that is lower!

Isn’t that useful?

Once again, you can access all of the above tools for free here. Please use internet explorer, as the flash required doesn’t work on chrome.

Best Spread Brokers
Axitrader 24hr avg. spread, vs other brokers. Source: https://www.myfxbook.com/forex-broker-spreads/axitrader-pro-EURUSD-real-spread/1736,1

With tools such as myfxbook, you can now source for brokers with the best spread, assuming that is one of your most important broker selection criterion, which I advocate it should be, for reasons given above!

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