Dealing with Forex Broker Spread widening

Dealing with Forex Broker Spread widening

 

 

So if spread widening is becoming a Forex Trading industry obstacle how can we as Retail traders manage this challenge?

Well the first thing is to qualify the problem

You particular broker may not be problematic so the best is to monitor the problem using a Forex Broker Monitor such as the one available through expert4x at http://expert4x.com/new-expert4x-broker-spreads-monitoring-indicator/

You need to do this on a live account and monitor the information for at least 7 trading days continuously. It is therefore best to use VPS where the monitor will run continuously.  Remember every time you close the chart the monitor could stop working.

Also monitor specific events such a major market opening, announcements and weekends specifically

If you have found your personal broker to be OK no need to worry about spread widening

 

If you have identified Forex Broker spread widening as a problem the following could help:-

  • Avoid entering SELL transactions as they require a stop-loss that will be a buy transaction. Spread widening only impacts buy transactions. Buy price are calculated by adding the spread to the sell price. The sell price stays relatively true. So exit buy transactions (stop losses) are impacted by spread widening. So if as result of entering a sell,  your stop loss will be an exit buy transaction which is highly exposed to spread widening.  Don’t expose yourself to exit buy transactions if possible.

  Conversely if you are in an active Buy transaction your stop loss will be a sell transaction. Sell prices are not impacted by spread widening so your are safe.

  • Be careful of Buy entry pending orders. If you have a pending order for a buy transaction with a stop loss of say 20 pips and the buy gets activated by a spread widening of say 30 pips you will automatically be stopped out when the spread returns to normal. This could literally happen in seconds or when the weekend spreads widen.
  • Avoid entering transaction at announcement times
  • Avoid having open trades over weekends
  • Use larger scaled transactions with large targets (+100 pips)  and stops (+50 pips) . They are less impacted by spread widening.
  • Use commission only brokers if you can find them
  • Use fixed spread brokers if you can find them

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3 Comments

  • Michael Kitching

    May 18, 2015

    Hi Alex
    yours is the best forex service around…many thanks. I am still a Forex novice but hope to trade soon. Could you be so kind as to further explain (perhaps with a screenshot/video) the first bullet point above as follows:

    “Avoid entering SELL transactions requiring buy stops Spread widening only impacts buy transactions. Buy price are calculated by adding the spread to the sell price. The sell price stays relatively true. So it is only exit buy transactions that will be impacted by spread widening. So if as result of entering a sell your stop will be an exit buy transaction. Don’t expose yourself to exit buy transactions (stops).”

    That was a bit of a mouthful 🙂 I am still a little unclear. What stop should I be using in buy transactions to avoid this problem? I’m sure this is very important information for all traders.

    best regards
    Mike Kitching

    • Hi Mike

      Just a note: Never put your email on a webpage – spiders will find it and send you spam.

      Thanks for your feedback. The general concept is that if you buy and currency cross the only way close the transaction is the enter a sell that cancels the buy. This is in fact what happens when your target or stop loss is hit – they cancel out the original transaction. People just do not think about the actual mechanics of a Forex transaction too much as it can be confusing at first.

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