Do you want to be successful at Forex trading? I understand how you feel. A big secret to your success is your choice of a Forex broker, especially when using certain scalper type strategies that look for many small gains. A fair spread is one of the key points in selecting the correct broker.
Did you know that the biggest broker related issue, especially when using certain automated programs and strategies, is the size of the bid ask spread. Additional issues include, but are not limited to, off quotes and slippage.
For your benefit, and additional information, a test was conducted to illustrate the point of price spreads between brokers. Two brokers were tested using the exact same automated robot and settings. One broker had a spread of 8 pips, and no trades were taken by the robot. The second broker had a spread of 4 pips and profitable trades were taken. While this was not a long term scientific study, it does illustrate the importance of the correct broker and pricing.
The point of this test was to illustrate that with any trade, either personally taken or using an automated trading robot, the spread is very important if one wants to consistently obtain profitable trades. A target of 4-5 pips is not unreasonable to expect.
If the spreads are too wide an automated robot simply doesn’t trade, as a way to protect you from inappropriate risk. If you are placing your own trades, you should have similar trading rules to follow. You can always widen your spread but this can be financially dangerous. If the price spread is consistently wide, you may want to look for another Forex broker.
Larger banks and institutions have the highest access to pricing and the most precise quoted spreads. Traders who use the Retail Market, i.e. you and me, for Forex trading will never have as accurate pricing as the larger players. However, choosing the correct broker can provide you with an extra edge that may make a significant difference in your profits over time.
The focus of this article has not been the very basics of broker selection or to be negative toward brokers. The focus has been on the price spread financial area that can make or break your account. However, when initially selecting a broker you should obviously get to know them. Call them and talk to them. If you don't like what you hear, move on. If you have a question, ask it! Make sure they are insured. Make sure they personally do not hold your money. Please reference the Bernie Madoff case.
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