IC Markets Offers The Lowest Spreads
In Australia, IC Markets offers the lowest spreads on FX currency pairs with the following average pip spreads
1) EUR/USD - 0.1
2) USD/JPY - 0.3
3) AUD/USD - 0.5
IC Markets can offer incredibly low spreads thanks to being an ECN, No Dealing Desk Forex broker.
Formed in 2009, International Capital Markets PTY. LTD. is based in Australia and offers more than one platform for FOREX trading. IC Market uses Australian banks and they also have a regulated, licensed broker. (Licence Number: 335692 and ACN: 123 289 109) Most FOREX trading platforms will not have their own, in-house, licensed broker. With this advantage as highlighted in our IC Markets review, IC Markets consistently offers some of the lowest ‘Spreads’ for trading in foreign currency.
What is FOREX Trading?
Forex’ is an acronym for the ‘Foreign Exchange Currency Market.’ This is a globalised institution which operates without any clearing houses and with the absence of any arbitration panels. Investors can trade, that is the buying and selling of different national currencies, to make a profit with the age old principle of ‘Buy Low and Sell High.’
Here’s a quick example; the value of the British Pound ‘Versus’ the value of the U.S. Dollar is constantly fluctuating. If one British pound is currently, and in this case the word currently means ‘Now’ as the exchange rate can move up or down in a matter of a few seconds which translates to making a profit or losing money.
Here’s a quick example; If one British Pound is currently worth $1.25 U.S Dollars and you pay $1,250.00 U.S. to buy 1,000 British pounds and then the exchange rate moves so that one British Pound is now worth $1.28 U.S Dollars, If you sell your holding of 1,000 British Pounds to buy U.S. Dollars at a price of $1.28; you would have a gross profit of $30.00.
This might seem to be a small amount of profit but the exchange rate regarding foreign currencies can move quickly and that $30.00 of profit can be realised in just a few seconds.
Is There A Commission?
The FOREX market is a little unusual in that there are not any fees regarding the trade or exchange and there are also no regulatory fees. The way the system ‘Pays’ any brokers is normally built into the ‘Spread’ with the an occasional exception in which a commission is paid based upon a percentage of the low spreads.
What is a ‘Spread’ and What Is a ‘PIP?’
The spread is the difference between the bid price, what you are will pay to buy one form of currency with another, compared with the selling price of the currency you are buying.
First of all, a ‘Quote’ on the FOREX Exchange will look something like this; EUR/USD > 1.4875 > 1.4878 with ‘1.4875’ being the bid or ‘Asking’ price and ‘1.4878’ being the actual price you will pay. In this case, the low spreads has a difference of three ‘Pips;’ 1.4878 minus 1.4875 equals 0.0003.
This brings us to what is a ‘PIP.’ A ‘PIP’ is an acronym for ‘Percentage In Point’ and it is usually 1/100th of 1%. On the Forex Exchange prices are shown out to the fourth decimal point so the difference between the quotes used in the above example is 3/100th of 1% or 0.003%, So the terminology used in the FOREX Exchange is to state that the spread is 3 PIPs.
3/100th of 1% may seem to be a very small amount but the FOREX Exchange has major banking institutions making trades worth millions of dollars many times each day.
What Causes Spreads to Fluctuate Drastically and Quickly in Price?
There are two main reasons why low spreads may change, or fluctuate, at a high rate.
First of all, the FOREX Exchange is composed of brokers who set up the deal between a buyer and a seller. You don’t actually buy directly from any individual or bank corporation; these deals are ‘Brokered’ some times in bits and pieces if someone is selling a massive amount of a single currency. Splitting a large ‘Sell’ into little pieces allows for smaller buys which are more realistic and not only within the risk level of future buyers, but also within the available principle that a buying investor will have available.
In other words; there are more investors with the cash to buy $10,000 worth of a currency compared to investors with the capital to buy $100,000 worth of currency.
Reason #1: Currencies That Are Very ‘Liquid.’
Currencies that are traded often and with each trade being of a substantial amount are considered to be ‘Liquid.’ This category has less risk involved for the broker as the broker knows with a very heavy volume of trading they can always move a large of amount of this currency at anytime and minimise any losses that might incur.
Reason #2: Volatility.
As an example, let’s look at a specific incident connected to Britain’s exit from the European Community. When Theresa May, Prime Minister of the United Kingdom as of the year 2016, made a declaration on January 17th that Britain was committed to an exit from the European Community. As a result of this, the value of the British pound dropped 10% in less than 24 hours.
The overall view of this is that a bunch of investors with large holdings in the British Pound began dumping it and buying other currencies. As the value of an individual currency drops and people panic and sell, another group of investors see this chaos and panicked selling as an opportunity and they quickly begin buying large quantities of the British Pound at this new low price speculating, or betting, the the British Pound will stabilise and rise back to its former price in a just a few weeks.
Most best forex brokers are aware of this ‘Volatility,’ but a broker does not want to hold investments. They just want to make their ‘Three PIP Spread’ profit of off each deal they broker.
With today’s technology information can literally move at the speed of light. In the few seconds that are necessary for a single transaction which requires funds to deposited and then transferred again; the low spreads can move five, or maybe ten PIPS in either direction. This puts the broker at risk of losing substantial amounts of money. Therefore, they raise the low spreads from the usual three to five, or ten, or even more PIPS. This gives them more profit in some trades to balance out the losses they may experience if the value of a currency they have bought from a seller drops quickly before they can complete the entire purchase.