Standard Spread Account Testing

Why do tight spreads matter?

The spread represents the amount a trade must move before generating profit. For instance, if you buy 1 lot (100,000) using IC Markets, the trade must increase by $9.63 before you earn any profit. This cost is comparable to commissions in “raw” accounts. Lower trade costs result in higher profits.

For trading strategies that rely on small pip profits (e.g., scalping) or automated trading, narrow spreads are crucial for success.

Average spreads for currency pairs

In our analysis, EUR/USD had the smallest spread, averaging 1.11 pips across all brokers, equal to a USD spread cost of $11.13.

As the world’s most traded pair (often representing a quarter of global FX volume), it’s no surprise that EUR/USD has the tightest spread.

The table displays the average spread and corresponding USD spread cost for the six major currency pairs we examined, across all brokers.

Cheapest brokers for each currency pair

Our tests also show the cheapest brokers for each of the six currency pairs.

CMC Markets and IC Markets are among the cheapest 4 brokers for all currency pairs. Admiral Markets is second cheapest for EURUSD and GPBUSD.

FX Pro is among the most expensive 2 brokers for all currency pairs. Blackbull Markets is among the most expensive 3 brokers for AUDUSD, USDCHF and USDJPY.

Average Spread For Each Currency Pair In Pips

What factors influence spreads?

Factors that can influence the spreads offered by different brokers include

1. The currency pair being traded
2. The volume of trades in the currency pair being traded
3. The volatility of the currency pair being traded
4. The time of day the trade is made

Volumes and the time of day

To see how volumes, volatility and the time of day affect spreads, we must look at some examples.

If we take the cheapest broker in our tests, IC Markets, we can see a typical picture. During the 30 hours of our tests, GBPUSD spreads peak around $35 at midnight Brisbane time. Midnight Brisbane time happens to be 2 PM London time and two hours into the New York Session. This is just when you’d expect GBPUSD volumes to be at their highest.

Volatility

To see how volatility affects spreads, we recorded the hourly volatility for each currency pair at every broker. We did this by recording the hourly Average True Range (ATR) with a period of 24 hours. Again, using IC Markets data for GBPUSD, we see volatility at its highest around 3 PM Brisbane time and around 10 PM to midnight, in the middle of the London session. In all our data, spikes in spreads happen when high volumes coincide with high volatility. These conditions cause spreads to double, or even triple at some brokers.

Brokers with the most stable spreads

As traders, we don’t enjoy seeing spikes in spreads like the ones in the charts above. We’d much prefer the spreads to be stable regardless of the volumes traded, the time of day or the volatility. So, which are the brokers with the most stable spreads?

To measure spread stability for each broker, we calculated the highest spread cost (spike) for each broker, averaged across the currency pairs.

From the table below, we see that the cheapest broker in our tests, IC Markets, also has the second lowest spike, so it’s the best example of tight, stable spreads.

How we tested

We used live “standard” accounts (as opposed to “raw” or fixed-commission accounts) for our testing. The six major currency pairs – AUDUSD, EURUSD, GBPUSD, USDCAD, USDCHF and USDJPY were used to conduct our testing. We used hourly (H1) data over a 30-hour period.

To record the spreads, we used a freely available MT4 indicator, IceFX SpreadMonitor, that displays the current minimum, maximum and average spread values for a chart (currency pair). The indicator’s screen output looks like this on an AUDUSD chart for H1 (hourly) data:

The indicator also writes the results to CSV files, providing us with data to perform our analysis. A typical CSV (for GBPUSD data at IC Markets) looks like this:

To record the volume and volatility history, we modified an open-source MT4 script, ExportHistoryCSV.mq4. The critical data we wanted to record was the hourly close, the hourly volume and the hourly Average True Range (ATR), which we used to measure volatility. The code snippet below enabled us to do that.

iDigits=MarketInfo(Symbol(),MODE_DIGITS);

dSymClose = (iClose(dSymbol,Period(),i));
dSymVolume = (iVolume(dSymbol,Period(),i));
dSymATR = (iATR(dSymbol,PERIOD_H1,24,i));

WriteData(DoubleToStr(dSymClose, iDigits)+”,”);
WriteData(DoubleToStr(dSymVolume, iDigits)+”,”);
WriteData(DoubleToStr(dSymATR, iDigits)+”,”);

A sample from the IC Markets data for GBPUSD looks like this:

How we calculated the spread cost (in USD)

This table shows the calculations we used to compare spread costs across the currency pairs. A standard USD spread cost allows us to compare spreads from different brokers and different currency pairs.

In forex trading, spreads are always expressed in pips, with a pip being 1/10,000th (0.0001) of a standard “lot.” A “lot” consists of 100,000 units, so for an AUDUSD trade, a pip equates to USD $10 (0.0001 x 100,000).

Suppose the average spread for AUDUSD is 0.821 pips (as per IC Markets); the spread cost amounts to USD $8.21 (0.821 x $10). This calculation method can be similarly applied to determine USD spread costs for EURUSD and GBPUSD spreads.

Calculating USD spread costs for USDCAD and USDCHF spreads is slightly more complex. Pips are expressed in the quote currency or the second currency in the pair. Hence, USDCAD pips are in CAD, and USDCHF pips are in CHF.

To convert CAD and CHF to hourly USD spread costs, we utilized the hourly closing prices of USDCAD and USDCHF, respectively. For instance, if USDCAD closed at 1.374, a pip’s value is USD $7.27 (10 / 1.374).

Lastly, to calculate USD spread costs for USDJPY, we employed the same method as for USDCAD and USDCHF. However, a pip for USDJPY is 1/100th (0.001) rather than 1/10,000th.

The time zones of our tests

We ran our tests across a 30-hour period from 9:00 AM on 14th March, 2023 to 2:00 PM on 15th March, 2023. These times are in time zone UTC + 10, which aligns with Brisbane, Australia.

As we can see from the time zone converter (https://www.babypips.com/tools/forex-market-hours), 9:00 AM Brisbane has the lowest volume of all times during the forex day, meaning spreads should be at their lowest and most stable.

We kept our tests running overnight, during the highest volumes of trading and through all the major forex sessions – Sydney, Tokyo, London, and New York. These 4 markets all have different opening hours for forex trading. Our tests stopped at 2:00 PM Brisbane time, about half-way through the Tokyo session.

A second test to confirm our results

To confirm our test results, we ran another test exactly a week later. We expected increased volatility, and perhaps wider spreads since the market was still reacting to the banking crisis and the fall of Credit Suisse and Silicon Valley Bank.

Overall, however, the spread costs were very similar, as we can see below.
Some highlights are:

• IC Markets and CMC Markets were still the cheapest brokers, while FXPro was still the most expensive
• FXCM was $1.94 cheaper on average in the second week of testing
• Pepperstone spreads were $1.94 more expensive on average in the second week of testing

Tightest Spread Standard Accounts for Australian Traders

ASIC is the Australian Securities and Investments Commission. In Australia, ASIC-regulated brokers are legitimate and trustworthy. These are the five tightest spread, ASIC-regulated brokers.

The table shows the Average Spread and equivalent Spread Cost (in USD)

Australian Forex Brokers

Tightest Spread Standard Accounts for UK Traders

FCA is the Financial Conduct Authority. In the United Kingdom, FCA-regulated brokers are legitimate and trustworthy. These are the five tightest spread, FCA-regulated brokers.

The table shows the Average Spread and equivalent Spread Cost (in USD)

Best Forex Brokers UK

Cheapest Accounts for US Traders

In the USA, the National Futures Association (NFA) and the (CFTC ) Commodity Futures Trading Commission have regulatory oversight of forex brokers. These are the five cheapest brokers. Note MT4 is not offered by all brokers.

The table shows the Total Trade Cost (Commissions plus Spread)

Best Forex Brokers USA

Key Takeaways

• IC Markets, CMC Markets and Fusion Markets had the tightest spreads across the major currencies in our testing, against “standard” accounts.
• High volume (coinciding with high volatility) in the middle of trading sessions caused spreads to spike upwards for all brokers.
• IC Markets is the best broker for tight and stable spreads.
• A second test showed similar results to our first test run, adding to our confidence in the outcomes.

It’s worth noting that you should pick a low spread broker regulated in your region. For this reason we made lists based on regulator like the FCA-regulated lowest spreads forex broker and US lowest spread forex broker page.

Published Standard Account Forex Spreads

We consider our testing results with those published by the forex brokers. This is sourced either from their website, product disclosure statements or direct communication. The last update was in September 2023.