Best Zero Spread Forex Brokers
What does Zero Spread mean?
In the foreign exchange market (Forex) prices are represented as currency pairs or exchange rate quotation where the relative value of one currency unit is denominated in the units of another currency. An exchange rate, applied to a customer willing to purchase a quote currency is called “bid”. A price of quote currency selling is called “ask”, representing the lowest price that a currency pair will be offered for sale. Therefore, in Forex trading the difference between ASK and BID is called “spread”. A spread represents brokerage service costs and typically replaces transactions fees. Forex brokers applying a spread fee are called market makers but they are not the only type of broker available.
Zero Spread Forex Brokers are typically those that offer a STP (straight-through-processing) or ECN (Electronic Communications Network) broker model. They are the opposite of market makers as they do not operate a dealing desk (NDD). Instead, they fill clients’ orders without intervention and allow for direct access to the financial markets. This means that it is not the broker who sets the price but it is the market itself. ECN brokers provide traders with direct market access (DMA).
When a broker offers a trading account that has no difference in the BID and ASK price we call them zero spread accounts.
What are the advantages of Zero Spread Accounts?
Apart from the obvious fact that Forex traders gain access to the live market spreads of liquidity providers without any spread mark-up applied by a Forex broker, there are other advantages that zero or low spread accounts offer.
Such accounts allow traders that trade Forex or CFDs to know in advance what their entry and exit levels will be when they open positions. These type of Forex accounts are also beneficial for calculating non-trading losses, such as slippage, and are ideal for certain Forex strategies including day trading or high-frequency scalping.
Further, apart from offering the best available market price, superior trading conditions and fast trade execution speeds, ECN brokers commonly charge transparent, fixed commissions instead of using spread mark-ups to earn commissions. ECNs can further be accessed and are often more efficient during “after hours” trading, which is a particularly relevant benefit in trading Forex.
The direct market access (DMA) technology which provides access to pricing from several liquidity providers ensures that there are no re-quotes and execution at the order price is virtually guaranteed. All trading strategies including scalping are accepted on ECN platforms since ECN brokers make money the bigger the deal flow and not from winning or losing trades of customers.
ECNs are also highly efficient for traders operating EAs (expert advisors) for automated trading because execution speeds are accelerated. EAs are very popular with the world’s favorite MetaTrader 4 (MT4) trading platform for example.
Are there any disadvantages to Zero Spread Accounts?
ECN trading with a zero spread account is typically more expensive than trading with a classic market maker broker where fees are charged through spread mark-ups (fixed spreads) on other account types (often called Standard Account). The best ECN brokers generally charge a commission on every trade placed which is economical beneficial for larger trades and higher frequency traders but not so much for retail traders with low volume. Commissions are often $2.50 to $5.00 per traded standard lot (the equivalent to 100,000 units of the base currency in a Forex trade).
Since traders are dealing directly with the liquidity providers liquidity requirements are high with ECN trading. In the market maker model, the market makers provide liquidity intervention on the trader’s behalf. With the ECN model on the other hand, the responsibility of meeting liquidity requirements rests on the trader themselves. As such, the account opening capital requirement for a true ECN account is commonly higher compared to standard trading accounts.
Other disadvantages may also include smaller or bigger leverage, higher minimum deposit requirements, a higher initial account opening size, non-application of Negative Balance Protection, tighter Margin Calls and Stop Loss Levels, or various permutations of the above.
Examples of Zero Spread Account Forex Market Brokers
Forex brokers offering ECN or STP trading models are the most popular among traders these days despite fixed commissions being charged. All trading strategies are accepted on ECN platforms which makes it ideal for day traders, scalpers and EAs alike.
A typical and one of the largest, most popular true ECN brokers is IC Markets. Their True ECN account offers some of the lowest possible spreads available. For example, the average EURUSD currency pair spread is 0.1 pips and only a small commission of $3.50 per traded lot is applied. With liquidity from over 50 different banks and dark pool liquidity sources IC Markets True ECN account was specifically built for day traders, scalpers and expert advisors (EAs). Their MetaTrader 4 (MT4) and MT5 True ECN servers are located in the Equinix NY4 data center in New York and their cTrader True ECN server is located in the LD5 IBX Equinix Data Centre in London. Both locations serve to ensure ultra-low latency and the fast execution of all trades.
Their True ECN trading environment allows traders to make use of some of the tightest spreads of all Forex brokers worldwide as well as many other great features, which are outlined in more depth below.
Giving their clients the option to either use MetaTrader 4, MetaTrader 5 or cTrader platform as their trading platforms of choice, IC Markets designed one of the first True ECN trading environments. This offering has no restriction on trading including no minimum order distance (trades can even be placed within the spread), and scalping, hedging and automated trading all permitted. Their True ECN account spreads start at 0.0 pips with flexible leverage options offering up to 500:1. All trading platforms are available for download or as a webtrader as well as on mobile (both Android and Apple's iOS).
How to choose the best Zero Account Broker?
As always, we recommend that you heed all risk warnings that come along with trading the markets and that you choose a broker that is licensed and regulated. ASIC (For Australian regulated brokers), FCA (UK), CySEC (Cyprus) or IFSC (Belize) regulated brokers are usually a good choice as they commonly guarantee safety of deposits and put client funds in segregated trust accounts with top tier banks.
You should also consider minimum deposit requirements, trading costs, spreads and which deposit and withdrawal methods are being offered. We have compiled a selection of the best zero spread account Forex brokers for you to choose from that all offer excellent trading conditions and low commission charges.
Conclusion
We choose IC Markets as our top True ECN and Zero Spread Account Forex Broker as they offer very tight spreads, low commissions, fast trade execution, a large selection of trading instruments and an overall stable and reliable trading environment. Fees and charges are completely transparent and as an ASIC regulated broker they can be considered trustworthy and professional.