The Lowest Pip Spread Forex Broker In Australia
Evaluating & Choosing Forex Brokers
Online currency trading on the Foreign Currency Exchange (Forex) is an easy business to establish. The cost of entry is low. Two of the main requirements, a computer and an internet connection, are things most people already have.
Forex brokers provide a third essential element, trading software, available for use free of charge by funded clients. Other than discretionary funds for the purpose of currency speculation and some basic currency market education, the only other requirement is a Forex broker.
Market Makers and Electronic Clearing Network Brokers
Forex brokers come in two main flavours. The “Market Maker” type of broker takes the opposite side of the transaction from the client in every Forex trade. The other type of broker, the Electronic Clearing Network (ECN) matches currency pair buyers with currency pair sellers and is not involved in the transaction in any other way. There are also brokers that offer both ways of participating in the Forex market.
Minimum account and trade sizes are generally smaller with the Market Maker, but many currency speculators worry that having their broker on the opposite side of their trades is worrisome, although that issue has mainly disappeared as regulation and client awareness has almost eradicated any of the shady tactics Market Makers used in the past.
Cost of Participation in the Retail Forex Market
Whichever type of broker is selected, traders will be charged a fee by the broker for supplying those traders with access to the currency exchange market. The primary fee involved is known as the “spread.” Simply explained, the spread is the difference in price between buying and selling a currency pair. Spreads are quoted in “pips,” with one pip being the smallest possible price move in an exchange rate. For traders in Australia and New Zealand and the entire Pacific region, a critical task in getting setting up to trade Forex online is to find one of the lowest pip spread Forex broker in Australia.
The effect of the spread is easily seen. Every trade, whether long or short, is charged the spread as soon as that trade is initiated. The instant an order is executed, that trade will be losing money by the amount of the spread. The spread reduces the profit on winning trades and adds to the loss of losing trades, so it is quite easy to see why finding the lowest pip spread Forex broker Australia offers needs to be a high priority task.
Types of Spreads
A fixed spread Forex broker sets a spread price that remains constant, although the spread will vary between currency pairs. Pairs composed of major currencies (U.S. dollar, euro, Japanese Yen, Swiss franc, British pound, Australian dollar, and Canadian dollar) will typically have spreads of no more than two pips. Currency pairs containing “exotic” currencies will have higher spreads. One example is the New Zealand dollar/Singapore dollar (currency symbol NZD/SGD) will typically be quoted with spreads of five to 10 pips, depending on the broker.
A variable spread broker’s spreads vary according to several factors, mostly related to potential volatility and wide, rapid price swings. A broker that charges 1.5 pips for the USD/AUD pair during typical trading conditions will raise the spread considerably just before an important economic announcement, such as the U.S. Federal Funds Rate, or unemployment figures in Australia. Spreads in the minute before an announcement of this nature can go as high as 10 or 15 pips, again, according to the broker.
With a broker that charges dynamic spreads, spreads fluctuate moment by moment. This fluctuation is typically very small, a fraction of a pip in most cases. Brokers that use this system typically offer very low spreads in the first place and some traders express the belief that they can use the variations to determine whether it is best to trade long or short for trades that last only a short time, under a minute for instance.
Lowest Pip Spread Forex Broker Australia Offers
The following information is for comparison purposes and is not intended to function as a recommendation of any particular broker. Forex traders should perform thorough due diligence in the broker selection process in order to find the best match for account size and trading styles, amongst other factors.
Easy Markets (Formerly Easy Forex)
Easy Markets easily qualifies as one of the most consistent low spread Forex broker in Australia. They are a fixed spread broker, yet they do not charge any commissions beyond the spread, something that is not too common with fixed spread brokers. They advertise fixed spreads of as low as 1.8 pips, but that rate requires a minimum first deposit of at least $20,000. Someone with less risk capital will still receive fixed spreads, but those spreads start at three pips for the major pairs.
Based in Great Britain, IG Markets is available worldwide and is one of the lowest spread Forex brokers in Australia. IG quotes spreads of as low as .6 pips on two pairs, the EUR/USD and the AUD/USD. Their spread is variable, not fixed, and averages .95 pips for the EUR/USD and 1.29 pips for the AUD/USD. It will take more investigation to ferret out some of the details for traders considering trading with IG Markets, such as when their spread is their standard rate, their average, or their minimum.
Plus 500, like IG Markets, is a variable spread CFDs provider, with their lowest quoted spread being two pips. They offer the ability to fund an account for as little as $100. They cap their leverage at 300:1, but new traders may want to look into setting their personal leverage rate lower until they get a real world understanding of the effect of leverage on a transaction.
Selecting the best Forex broker in Australia is possibly the most difficult of the necessary decisions involved in setting up an online Forex trading business. Reading and understanding broker marketing materials is paramount and spending time reading reviews from Forex traders is a tedious but critical step in the broker selection process. Keep an eye out for brokers offering tight spreads, common currency pairs (such as eur usd, aud usd etc) and learn how market makers make their money. They may charge commissions with fixed spreads or variable spreads just be sure to choose a broker that has the account types and features you’re after.
On one hand, a substantial number of reputable brokers takes some degree of anxiety out of the task, and on another, there is absolutely nothing to prevent a trader with sufficient funding resources from setting up multiple accounts to evaluate brokers under actual trading conditions. Just be certain to familiarise yourself with the risks associated with trading leveraged products. A demo account is advised to become familiar with currency trading. Volatile trading conditions can make things difficult so be sure to fully comprehend the risks before you start trading.