Many forex brokers advertise themselves by boasting very low spreads. While this may be appealing to some forex traders, they shouldn’t turn a blind eye to other characteristics of the broker.
Guest Post by Yohay Elam of Forex Crunch – Forex Trading Blog
Advertisements across the web flaunt very narrow spreads between the Ask and Bid prices. For popular pairs such as the EUR/USD, I’ve seen commercials that offer a spread as low as half a pip. The spreads are larger for less popular pairs, for minors crosses and exotic currencies.
While low spreads can be appealing to scalp traders and for those who make lots of trades per day, this isn’t that important for most traders. More “reasonable” traders don’t make too many trades, but rather wait for an opportunity. When an opportunity arrives, they seize it, and go for a profit of many tens of pips, if not hundreds. In such trades, the spread doesn’t make a big difference.
But when searching for a forex broker, those that offer tighter spreads, seem to offer a better price. But it’s not only about the price – it’s about the quality of service and the trust you give your broker.
For example, some brokers can close your trade when it hits the Stop Loss point. While this can happen naturally, some brokers will round the numbers in order to make you lose your money. I’m sure you’ve heard about such cases.
When you to make a trade, you trust the software to react quickly and flawlessly. Is your software reliable? Does it get stuck in crucial moments? Sometimes you’re away from your computer, but you still want to act, by calling your broker. Do they always answer your calls quickly? Are they helpful?
These service factors are very important. I’d trade a tight spread for better quality of service, and I’d like to work with a broker that I trust over a broker that gives me a better deal, but might disappear.
An excellent, though not perfect method of checking out the broker is by starting with a forex demo account. While a demo account can’t fully simulate the experience of a real account, it can make you acquainted with the software, acquainted with the broker and give you a feel if you can trust the broker or not.
If you’re lucky enough to find a reliable broker that offers good spreads, good for you! But don’t be tempted and blinded only by the tight spreads.
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