Forex Trading Costs Are Getting So Small That Some Brokers Regularly Show Zero Spreads

Its live forex spread report tracked prices from eight brokers roughly every five minutes throughout the trading day, creating a six-month record of how much traders were effectively paying through the spread.

The spread is simply the small difference between the price at which a broker allows someone to buy an asset and the price at which they can sell it.

The smaller that difference, the cheaper it is for a trader to enter and exit a position, although brokers may also charge separate commissions.

For EUR/USD, the world's most heavily traded currency pair, the differences recorded by BestBrokers were tiny.

Fusion Markets had an average spread of just 0.03 pips, while IC Markets averaged 0.06 pips and Pepperstone 0.10 pips.

A pip is a standard unit used to measure small currency-price movements.

For the average person, however, the more important point is simply how close these numbers are to zero.

BestBrokers also found something even more unusual at Fusion Markets: many individual weekday price readings showed no spread at all.

In other words, the buying and selling prices displayed by the broker were identical at those moments.

That would have been a remarkable selling point for an online broker not long ago.

Today, it increasingly shows how intense competition for active traders has become.

BestBrokers also recorded zero readings at FxPro, although many of those appeared during weekends when the underlying markets were closed.

Fusion's zero-spread observations, by comparison, continued to appear when only weekday data was considered.

This does not mean trading has become free. Many accounts offering extremely low spreads charge a separate fee on each trade.

Brokers can also earn money through overnight financing charges and other services.

The spread is therefore only one part of the overall cost.

For years, brokers heavily promoted their spreads.

A platform offering noticeably cheaper buying and selling prices could use that difference to attract customers from competitors.

On the largest currency markets, there is now much less room to do that.

When one broker averages 0.03 pips and another 0.06 pips, the difference exists, but both numbers are already extraordinarily small.

Even doubling the spread does not necessarily create a large difference in cash terms for an ordinary transaction.

That could change how brokers compete for customers.

If several companies can offer prices very close to zero, traders may increasingly judge them on other things: commissions, how quickly trades are executed, the quality of their apps and platforms, the number of markets available and the quality of customer support.

There is also a simple lesson for consumers. Seeing "zero spread" in an advertisement does not automatically mean that trading costs nothing.

A broker may provide almost identical buying and selling prices while charging a commission separately.

BestBrokers' six months of data nevertheless shows that zero or near-zero pricing is no longer just an unusual promotional claim.

For the world's biggest currency pair, it is increasingly becoming part of the everyday competition between online brokers.