In Forex trading, spread is the difference between the ask price and the bid price. For example if a GBP/USD is quoted at 1.99846/1.99841, the spread would be 5. The Forex broker is at free will to choose either variable spread or fixed spread for their trading platform. It is important that you understand the type of spread you will be offered for trading. When using fixed spread, there would be no change in the magnitude of this value. The magnitude of fixed spread always remains constant irrespective of the market condition. However when the Forex broker is using variable spread, the magnitude of this value keeps on changing depending on the market condition. There are several advantages of using fixed spread as discussed below.

Profitable scalping

Using fixed spread often makes the scalping trading strategy very profitable. As always, the scalping trading techniques becomes more profitable when done under tight spread. This is the primary benefits of using fixed spread. Scalping is a very profitable Forex trading strategy that many people are using. The trader can use it to make massive profits within a short duration if the market favours him. To increase profitability scalpers often choose to work with Forex brokers offering fixed spreads rather than using the market maker brokers. In this case, there is no swinging nature of the spread that could change the profit levels.

High level of transparency

There is high level of transparency enjoyed by both the trader and the Forex brokers when using fixed spreads. The use of fixed spread especially when dealing with interbank network does not give the Forex broker an opportunity to engage in unethical practices such as changing spread to favour their sides. This is a problem that affects very many traders. In most cases, some unethical Forex brokers would spike prices to favour them. They usually do this by simply increasing the spread in the expectation of big news in the market. The result is a conflict of interest between the trader and the broker.

Easy automated trading

Many Forex traders usually depend on automated trading techniques. They most use the Forex robots or the provided expert advisers to engage in automated trading. It is only when using fixed spreads that the process of automated trading becomes easy, simple, and profitable. However, when the trader is under variable spreads or ECN, the process becomes very problematic and non-profitable. There are many benefits of using automated trading as the trade can be executed in the absence of the trader. When using the variable spreads, applying the automated trading techniques become very problematic because the Forex robots are unable to integrate the floating spreads. It subsequently results in trade losses.

Easy news trading

News trading becomes very simple and easy when using fixed spread as compared to variable spreads. The news trading does not work well for variable spreads because the spreads significantly widens prior to big news that would like shake the market. It has potential of leading to massive losses. This is a rare occurrence when using fixed spreads.

Conclusion

Understanding the type of spread that your Forex broker is offering is very important. This greatly helps develop a good and profitable Forex trading strategy. The Forex broker is free to use fixed or variable spread; all have advantages and disadvantages. There are advantages of using fixed spreads other than what are discussed above. The benefits of using fixed spreads are that there is no uncertainty when trading. In addition, most Forex trading strategies only works well with fixed spreads.

Author's Bio: 

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