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Everything you need to know about the floating spread in stock trading

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Before choosing a broker, and sometimes even before opening an account, the question arises which commission option to prefer – floating or fixed?

Floating spread – the broker’s commission dynamically changing depending on the situation on the market, for individual currency pairs, fluctuations in the spread can be up to several tens of points.

For example, one of the brokers has a minimum spread for the EUR USD pair of 0.1 points, and the maximum recorded expansion reached 30 points, and this is with a four-digit quote .

What determines the value of the floating spread?

• Low liquidity – periods of calm in the forex market, usually this happens on holidays and pre-holiday days, for some reason it is argued that when the client’s transactions are brought to the market, the broker incurs additional costs.

It is hard to believe, but the fact of expansion is present, at this time the size of the commission when opening transactions can increase tenfold.

• High volatility – or fast trend movement, often this happens during the release of important messages, the trend is moving rapidly, and the forex spread increases exponentially.

• Time of day – or to be more precise, depending on the Forex session , for example, for pairs that include the euro, the lowest average spreads during the European session, and for the Yen, respectively, in the Asian session.

• Individual – it turns out that there is such an approach when comparing the spread for the same pair, but different traders have different values. Usually such a moment can be found in small brokerage companies. The fee in this case depends on the size of transactions and their success.

What are the advantages and disadvantages of a floating spread?

Advantages – you can catch the moment when the spread value drops literally to a minimum and make the most profitable deal. This is especially true for those traders who trade using the scalping strategy and use a large leverage.

Disadvantages – the need for constant monitoring of the size, to facilitate the process, it is recommended to use the spread indicator . The increase in the fee for opening a transaction occurs at the most unfortunate moment when you need to urgently open an order.

Most brokers already have account options, a complete list is available on the Brokers – Variable Spread page .

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