As a Forex trader, you probably know that the Forex market presents different types of trading accounts. This article outlines the difference between floating spread accounts and fixed spreads highlighting their advantages and disadvantages.
Understanding Floating Spreads
Most brokers usually offer this type of account. "Floating" means that the spread value is not static and can change based on certain circumstances. For example, the spread in the EUR/USD pair may start at 15 but may turn into 20 or even jump to 100 in unusual market conditions. Market volatility is the main factor affecting the value of the spread.
These spreads are often widespread during high market volatility, such as during important news events or low trading activity, such as as as soon as the market is opened or closed.
1. Advantages of Floating Spread Account:
- Under standard market conditions, spreads are relatively low.
- This type of account is usually accessible through most brokers.
2. Disadvantages of Floating Spread Account:
- The spread value can increase significantly during the market fluctuation period.
Understanding the Fixed Spread
This type of account is not often offered by brokers. However, some brokers joined in their offerings. As the name suggests, fixed spread accounts have consistent spread values and are not affected by market changes.
For example, in the EUR/USD pair, if the spread starts at 20, it will remain at 20 consistently. In general, this type of account has higher spreads compared to floating spread accounts under normal market conditions. However, one of its main advantages is the stability of spreads that are not affected by market volatility.
1. Advantages of fixed spread accounts:
- There are no concerns about increased spreads during market volatility.
2. Cons of Fixed Spread Account:
- Typically, they have higher spreads compared to floating spread accounts in standard market conditions.
- They are not very readily available and less popular.
Floating conclusion and fixed spreads
Floating spreads and fixed spreads accounts show the difference in spread consistency. Each type has its own unique advantages and disadvantages. However, floating spread accounts are more often found due to their widespread presence among brokers.
However, traders are advised to choose an account type that suits their trading approach for maximum efficiency.
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