As the name suggests, a fixed spread is a predetermined rate or fee in which a trader must pay on their trade. The spread does not change in regards to time or market fluctuations and volatility. Generally speaking, fixed spreads are a safer bet than variable spreads due to the known price of the spread. As well, they are more convenient and less stressful in knowing how much needs to be made on the trade to take a profit. Fixed spreads may vary in prices from broker to broker, but remain the same for each and are made known to the trader. In most cases, fixed spreads are wider than variable spreads, usually between 2-3 pips. Therefore, brokerages who utilize wider fixed spreads will not charge additional commissions or fees on trades because the fee is built into the fixed spread.show more
Many traders prefer brokerages who offer fixed spreads opposed to variable spreads. To learn why, see the advantages of fixed spreads below.
Transparency – When the spread is known “fixed” the trader knows the exact cost of the trade, thus creating fully transparent costs. Each time you trade, regardless of the market conditions, market hours, liquidity, volumes, traders are aware of the costs involved.
Lower Costs – While fixed spreads can be wider than variable spreads, they offer consistency. Traders can plan out their trades and budget their costs for transactions. Implementing a plan like this will greatly reduce your overall costs when you know what they are going to be.
Ideal for Trending Markets – Fixed spreads stay the same regardless of the news. Therefore, when the news is very good, variable spreads will be going up in the markets, while your fixed spread stays the same. This allows traders to potentially profit more than traders who are dealing with variable spreads.
Stability in Volatile Markets – Traders using a fixed spread benefit from not having to worry about the effect market news will have on the spread. It is much more difficult to make profitable trades when you’re constantly analyzing both the markets and the spread.
Effective for Scalping – Forex traders who make a large amount of trades in a very short amount of time are considered scalpers. Trading this way is much more predictable and safer using fixed spreads.
While there are many advantages of fixed spreads, they do have their drawbacks. For example, fixed spreads are not guaranteed to be the lowest spread price. Variable spreads may be lower at times, especially in highly liquid markets. For more experienced traders, fixed spreads are not as desirable because they can not take advantage of the best possible spreads in highly liquid markets. All in all, it depends on the trader whether fixed spreads are advantageous or at a disadvantage. Each trader is different, and has to decide which spreads are best for them.