Fixed vs. Variable Spread in Forex Trading When trading forex, one of the most important factors affecting your costs and profitability is the spread . In simple terms, the spread is the difference between the bid price (the price you can sell at) and the ask price (the price you can buy at). Traders often encounter two types of spreads: fixed and variable. Understanding the differences between them can help you make better trading decisions and manage your costs effectively. What Is a Fixed Spread? A fixed spread stays constant, regardless of market conditions. For example, if a broker offers a fixed spread of 2 pips on EUR/USD, it will remain 2 pips whether the market is calm or highly volatile. Fixed spreads are usually offered by market maker brokers who set their own prices and guarantee a stable spread for their clients. Advantages of Fixed Spreads: ● Predictable Costs: You always know what you’ll pay when opening a trade. ● Useful for Beginners: Traders can calculate costs easily without worrying about sudden changes. ● Stability in Volatile Markets: Even during events like employment reports or central bank announcements, the spread does not change. Disadvantages of Fixed Spreads: ● Wider in General: Fixed spreads tend to be larger than average variable spreads during normal conditions. ● Possible Requotes: In fast-moving markets, some brokers may reject your order and ask you to confirm a new price. What Is a Variable Spread? A variable (or floating) spread changes depending on market conditions. For example, during calm periods, the EUR/USD spread might be as low as 0.2 pips, but during volatile events, it can widen significantly. Variable spreads are typically offered by ECN and STP brokers , who connect traders directly to liquidity providers. This means pricing is more transparent and reflects real market conditions. Advantages of Variable Spreads: ● Lower Costs in Normal Conditions: Spreads can be very tight during liquid sessions like the London or New York session. ● Transparency: Prices are sourced directly from liquidity providers. ● No Requotes: Orders are usually executed at the best available market price. Disadvantages of Variable Spreads: ● Unpredictable Costs: Spreads can widen suddenly during volatility. ● Harder to Calculate Risks: Beginners may find it tricky to plan trades with fluctuating costs. Which Type of Spread Is Better? The choice between fixed and variable spreads depends on your trading style and risk tolerance: ● Scalpers and Day Traders: Often prefer variable spreads because tight spreads during active sessions lower their costs. ● Swing Traders and Beginners: May prefer fixed spreads for predictable expenses, even if slightly higher. ● News Traders: Variable spreads can be risky since spreads widen during major announcements, increasing costs. Factors to Consider When Choosing 1. Market Volatility: If you trade during major economic events, variable spreads might widen too much. 2. Trading Strategy: High-frequency strategies benefit from tighter spreads, while long-term traders may not notice small differences. 3. Broker Type: Market makers usually provide fixed spreads, while ECN/STP brokers offer variable spreads. 4. Overall Costs: Don’t just look at spreads consider commissions, slippage, and execution speed. Practical Example Imagine two traders entering a EUR/USD position: ● Trader A uses a broker with a fixed spread of 2 pips. No matter when they trade, the spread stays at 2 pips. ● Trader B uses a broker with a variable spread . During the London session, the spread is only 0.3 pips, saving money. However, during a high-impact news release, the spread jumps to 5 pips, costing more. Both models have benefits, and the choice depends on when and how you trade. See more: https://forex89.com/barrier-option/ https://forex89.com/account-deficit/ Final Thoughts Choosing between fixed and variable spreads is an essential decision for every forex trader. Fixed spreads provide stability and predictability, making them attractive for beginners or traders who want simple cost structures. On the other hand, variable spreads can be cheaper in liquid markets but carry the risk of sudden widening during volatility. At Forex89 , we believe understanding spreads is a key part of building a successful trading strategy. By knowing how each model works and matching it to your trading style, you can manage costs effectively and focus on improving your overall performance.