One of the points that you have to consider when you look at Australian forex brokers is the spreads that you are going to get. There are two schemes that Australian forex broker use and they are fixed and variable. It is important that you consider the pros and cons of the different schemes and whether would work with your trading.
What are Australian Forex Brokers Spreads?
The spreads that you get with Australian forex brokers will be the difference between the bid and ask prices. The spread is charge instead of a commission which is one of the major advantages to trading forex. The spreads are also the only way that brokers make money. There are some brokers that do charge a commission and these are generally the electronic communication networks. These networks offer you the best prices from a number of different providers. This means that they are not getting the spreads and make their money from the commissions they charge.
The Pros and Cons of Variable Spreads
Variable spreads are the more common of the two spread schemes. With variable spreads the spread amount will change with the market conditions and the number of traders online. Generally the more liquid the market the tighter the spreads are going to be. Of course, this is not always the case because brokers do try and take advantage of the times when a lot of traders are using the market.
One of the main benefits that you get from variable spreads is the better prices. Variable spreads are generally tighter than fixed spreads and will be a direct reflection of the interbank market. The variable spreads also offer some insight into the market and what is happening. As the rule of thumb is that the spreads are tighter when the market is doing well you can use this as an indicator of market conditions.
The major drawback of the variable spreads is the ever changing nature of the costs. When you use variable spreads you have no way of knowing what you are going to be paying. This can cause problems for certain trading strategies that require tight spreads. The impact on the strategies also means that certain trading strategies cannot be used with brokers that offer variable spreads.
The Pros and Cons of Fixed Spreads
The second and less common method of charging spreads is through the fixed spread scheme. The fixed spread will stay the same regardless of the market conditions and the trader numbers. Many traders feel that fixed spreads are better to use because of the constant nature of them.
The main benefit that you get from fixed spreads is always knowing what you are going to be charged. This allows you to use any strategy you want as the spreads do not change. You can also calculate what you are doing on the market with greater accuracy.
The main drawback is that you are not going to get the best spreads. Fixed spreads are generally wider than variable spreads. If you are using a strategy that requires tight spreads you could have a hard time finding the spreads that you need.