Do you know what a broker is making? Not a “kitchen” that turns the deal inside of you, but a real broker who is a provider of deals? If you omit various kinds of commissions that sometimes occur, for example, for withdrawing money, or for a lot, or for something else, then the broker’s main income is the spread.
Seeing market quotes, the broker sets slightly adjusted rates in its favor (in simple words). The size of the spread of each broker is different and depends on the type of account, trading volumes, etc. Each broker tries to prove that it is he who has the narrowest spread (the minimum difference between the purchase price of an asset and the sale). And some brokers go so far as to indicate zero (market) spreads.
Can a zero spread be true
Market spread (broker zero spread) means that the broker gives quotes to the trader on the market, not throwing his commission. The logical question is: why should a broker have such an unprecedented generosity? There may be several options:
- Zero spread for a single pair and only under certain conditions. This is necessary either to attract customers, or to attract interest in these currency pairs. A broker can afford the spread on other instruments somewhere to show loyalty.
- Unfair advertising. The broker’s goal is the deposits of traders with whom the company will sooner or later disappear in an unknown direction. In this case, you can spread and donate.
- Another commission calculation mechanism. Instead of a spread, a fixed amount can be withdrawn, in more detail about what is indicated in the contract. True, many people read it, and even more they delve into it?
- Hard additional conditions. In addition to the zero spread, the broker will set limits that will significantly reduce the trader’s opportunities. For example, setting non-trading ranges (blocking the possibility of taking profits in the specified range), increasing slippage, prohibiting scalping. All this can also be specified in the contract. But where and how veiled is another question.
- Hidden spread. International Standard provides for the withdrawal of quotations to the 5th digit, but brokers in the terminal indicate only 4 digits after the comma. That is, after rounding the spread seems to be zero, but in fact it is and is in favor of the broker.
In most cases, zero spread is a reason to think about the trustworthiness of a broker or to look into a user agreement. However, before looking into it, it makes sense to get acquainted with the methods of enticing traders in contracts that sometimes take the form of collisions. But this is a topic for a separate article.
Conclusion. Zero spread is possible, but not every broker, and in exceptional cases. No broker will voluntarily give up profits, although narrow spreads are possible. The more a broker has a narrow spread (and there are no commissions), the more turnover there is for trading accounts. Zero spread is more like a marketing move for individual instruments or a promotion (loyalty program). Or fraud.