Spread is a fee for Forex trading. There are differences in spreads set by security companies. If the spread is narrow, you can reduce the fee for one transaction. Spread is certainly not the only important part of Forex trading, but it is important to invest after considering the overall balance.
There are fixed spreads and variable spreads. Although fixed is the mainstream in domestic Forex companies, there are many overseas Forex companies which are fluctuating. When comparing spreads, you have to think about fixed and variable types before doing trade.
Let's understand how the spread works
Spread in Forex trading refers to the difference between the selling price and the bid price, and at the time of ordering from either position there is a loss amount of spread. In order for the loss to be resolved and turn to profit, the market must move to a positive vector. The wider the spread, the more loss at the time of ordering, so the narrower the spread, the more advantageous it is for trading.
However, reliability of the currency pair and the number of trade are greatly related to fluctuations in spreads. Forex brokers can also set with narrow spreads as the market becomes more stable as more trades are made. If it is a domestic broker, there are many transactions between yen and dollar, and it is normal that the spread narrows compared with other currency pairs.
When it comes to overseas Forex dealer, the number of currency pair transactions will change depending on the company, so the currency pair with a narrow spread differs. Even at Forex dealers, currency pairs of major trades change in places where Japanese people often use and where they are not. It is also important to understand why there is a difference in spread when making investments.
Compare the spread of overseas Forex traders and domestic Forex traders
Spread differs by the value set by the company, but the difference between overseas Forex and domestic Forex brokers is also growing.
In general, domestic Forex brokers have narrow spreads. This is the difference whether to buy or sell in accordance with trader's order.
For domestic, you do not trade directly on the market, and the cost can be lowered by bucketing trader’s orders. The trust in transparency decreases as a result of trading inside and there are companies where slippage occurs and intentionally let loss due to bucketing acts that do not trade in the interbank market. It is also the reason to say that low spread is not always good.
On the other hand, if you open an account with an overseas Forex dealer and make a trade, it will be direct deal, so you can invest with high transparency. There are also securities companies that mediate traders, if it becomes a direct deal, you will receive the loss damage as it is when you lose. In order to reduce the burden even a little, it is necessary to set the spread widely and take more trading fee per transaction.
Spreading is one of the important factors in Forex, overseas Forex companies place importance on reliability and transparency, for that spread spreads widely.
Domestic Forex companies have a mechanism to makes profit by letting customers put out losses, on the other hand, overseas Forex companies make profit as a result of customers making profits. Even if spreads are high, services such as bonuses and cash back are fulfilling, so it is often more advantageous to use overseas Forex companies when looking at the total. Spread is also like quantifying the risk of Forex companies. It does not mean that you cannot profit from simply widening spreads. Rather, it is more important from the viewpoint of risk reduction to properly understand the narrow spread and invest in it.
Overseas Forex has many advantages even if the spread is wide
The range of the spread is smaller if you open an account in a domestic Forex dealer and the spread widens in an overseas Forex dealer.
For beginners, the fee is unknown, and there are parts where it is difficult to understand the fee required for one deal in an overseas Forex dealer, but if the spread is directly linked to the fee, the fluctuation range is not narrow. However, even if the spread is wide, overseas Forex has several advantages.
In domestic Forex, when the market price moves intensely, large loss may come out without being settled by loss cut. At that time, you will be billed in the form of a margin call by the broker, but in overseas Forex with a wide spread there is rarely a margin call. This is because collecting fees by widening the spread and also as insurance to mitigate risk.
Since the level to be loss cut is low, it can be said that it is able to withstand market fluctuations to the last minute and that the state-of-the-art platform is used, it is more advantageous than the widening of the spread. Spread is an important factor as both in domestic and overseas trading frequency increases. Since long-term position holdings are common in investing in targeting swap points, the need for spreading is not high, but it is an important factor for day traders.
Since there are many domestic fixed spreads, the selection of a Forex company is in reference to the minimum spread. If it is an overseas Forex that often adopts variable spread, since the spread is always changing, it is important to select and use a company that presents average values.