For a Forex trader, since the narrower spread will cost less, many often think that it is a good dealer. The magnitude of the spread is natural as it relates to the cost to the trader. But narrowing the spread also means that the revenue of the Forex company will be reduced as much.
It is reflected in the trade environment
Recently, Forex brokers often make fees free, and there are also brokers who make profits by spreads. As the spread becomes narrower, the trader's cost decreases accordingly, but the price will be paid for the trading environment etc.
Since narrowing the spread reduces the revenue, the investment to a server for trade will be impossible, system failures occur such as slippage getting bigger, contracting power decreases, and so on. To say that the spread is narrow does not necessarily merit for traders, it is possible that extra loss will come out, such as opening slippage.
Furthermore, narrowing the spread may increase the number of market entries, the exchange rate may fluctuate in some cases, and institutional investors may make a single blow to individual investors who have entered pulled in by the spreads. These would make the market unstable.
Even if the spread is narrowed in this way, if individual investors who entered immediately withdraw from the market, the profits of Forex traders will be reduced and some companies withdrawing from spread competition will also come out.
In the spread competition, if you narrow it to the limit, dealers where fees have risen and slippage increases may be approaching the limit in the spread competition.
The nature of spread changes
Even as a Forex dealer, some companies have adopted methods other than the traditional system of narrowing spreads, widening them, fixing them or making them fluctuating.
In one Forex dealer, it adopts a mechanism that reduces the spread as the number of trading currencies increases, so that the trader who trades a lot decreases the cost. This also prevents spreading competition from overheating as it cannot calculate simply to compare the spread with other companies.
There are also suppliers who take a fee according to the number of trading currencies instead of making the spread zero.
The spread is thus the trader's cost, but on the other hand it is paid as a compensation to the trader. When choosing a trader, not only the spread but also the trading environment is important, and there are also systems that only those companies offer such as trap repeat. It's not a good spread because it's narrow, it's better to first compare some companies.