What Are Zero Spread Accounts In Forex Trading?
The Zero spread accounts are forex trading accounts that the forex broker offers to the forex traders. In this type of account, there is no difference between the ask price and the bid price. The zero spread account enables the forex trader to know his entry and exit level at the time of opening positions well in advance. Read on to find out more about zero spread accounts.
Detailed Information on Zero Spread Accounts
The difference between the bid price and ask price is called spread in forex trading. The value of the spread is a representation of the brokerage costs. It substitutes the broker fees and commission during forex trading. Experts say that if a forex trader engages in the scalping of high frequency or day trading, then it is highly profitable for the trader to get in touch with a broker who offers a zero spread account.
The zero spread accounts are quite similar to general forex trading accounts but without any variation between the ask and bid prices. The accounts are especially beneficial for the estimation of non-trading losses, one of which is slippage. The forex traders get more lucrative trading prices with the zero spread account. The forex brokers find the zero spread account advantageous for maintaining the market competition.
Before zero spread accounts, the primary marketing tools for forex trading were low commission rates and low spreads. But now, the most trending tool of the forex market is the zero spread account.
Advantages of the Zero Spread Account
The zero spread account is the most suitable tool for profitable trading in the foreign exchange market. The advantages of the zero spread account are as follows:
- It offers every small forex trader with the facility of quick and accurate execution of trades without the widening or tightening of spreads.
- If the forex trader places his bids on the wrong side, then he can modify his trade bias without causing any damage to the forex trading account.
- The zero trading account also makes sure that the pricing is sourced from different liquidity providers in the market.
- It also ensures that the forex trading commences at the accurate order price.
- The zero spread account also allows the forex trader to get access to the live forex market spreads without any extra mark-up on the spreads by the forex broker.
Disadvantages of the Zero Spread Accounts
The Zero Spread Account is not entirely advantageous. Owing to the fact that the forex broker fails to make a good profit off the zero spread account, he resorts to a variety of ways to extract money from the forex trading. These include an offering of fixed commissions, thereby simulating the fixed spread account, offering bigger/smaller leverage, a bigger initial account opening size, slow speed of execution, and so on. Here are the disadvantages of the zero spread account:
- The forex broker may require higher or smaller leverage while trading in the forex market, which the zero spread account cannot provide.
- The zero spread account often has a higher minimum deposit than the amount that the forex broker requires for the initiation of forex trading.
- There are quite a few forex brokers who do not apply for the protection of a negative balance on the zero spread account.
- The zero spread account often has tight margins and stop-loss levels that may make trading prone to losses for the forex trader.
How to Choose the Most Suitable Zero Spread Account?
Keep an eye on the amount of commission that the forex broker charges while offering a zero spread account. There are quite a few forex trading brokers who charge a nominal fee, add a nominal mark-up to the spreads, and then claim to offer the same as a zero spread account. There are some brokers who do not charge a commission at all for offering zero spread account. These brokers are generally dealing desk brokers who do not send the positions of the client to the open forex market.
The zero spread account is ideal for beginners in forex trading. It is especially good for trading with low transaction costs, and for protection against forex market risks. However, it is essential to get in touch with a reputable broker first before taking part in forex trading with a zero spread trading account.