Fixed spreads versus floating spreads

Choosing an account, you will meet two kinds of spread: fixed and floating. Neither is better in
the abstract — they suit two different styles, and the wrong choice adds real cost.

1. Floating spreads

The spread moves continuously with supply and demand in the interbank market. Deep liquidity means
a tight spread; thin liquidity or sharp volatility widens it.

• Strength: in liquid hours it is usually well below any fixed spread.
• Weakness: around news it can
  widen several times over, and you have no control.

2. Fixed spreads

The broker commits to a constant spread whatever the market does. It carries the volatility risk
for you, and prices that risk into the spread.

• Strength: you can cost a trade in advance exactly, with no surprises around
  news.
• Weakness: the fixed level always sits above the floating one in ordinary hours —
  you pay an insurance premium for the certainty.

3. The catch with fixed spreads

“Fixed” does not mean “always”. Nearly every broker’s terms carry an exception for
abnormal market conditions — precisely when you most wanted the certainty.

Fixed-spread accounts also tend to come with instant execution, which means you can meet a
requote: the broker declines your
price and asks again. While you consider, the market moves on.

4. Choosing for the way you trade

• Trading liquid hours, many trades — a floating spread is almost always
  cheaper.
• Trading around news, needing a known cost — a fixed spread makes the arithmetic
  firmer.
• New, small account, few trades — a fixed spread is easier to manage
  psychologically.

5. The comparison that actually works

Do not compare advertised numbers. Convert both to
round-turn cost per lot at the hours
you really trade, add commission where there is
any, and multiply by the lots you genuinely trade in a month.

Then subtract the rebate if your account earns one — the rate usually differs between
account types at the same broker, by enough
to reverse the comparison.

This article is for information only and is not investment advice. Conditions and fee levels are published by the brokers and can change at any time — check with the broker you actually use. Leveraged forex and CFD trading carries a high level of risk and can cost you your entire deposit.