Forex prop firms with the lowest spreads

Forex trading is the most dynamic and competitive, with traders constantly seeking new ways to optimize their strategies and maximize profits. The broker’s offered spreads are a significant factor affecting the trader’s end-goal performance. In the case of FX prop firms, those offering brokers with the lowest spreads can be more attractive for traders. In the following blog post, we are going to discuss the realm of Forex prop firms and identify the top prop firms offering the lowest spreads in the market.

Understanding Forex Spreads

Before the switch to the list of prop firms with the lowest spreads, let’s first understand the concept of spreads in Forex and financial trading in general. A spread refers to the difference between the bid and ask prices for a currency pair. It represents the cost of executing a trade and is a key factor for traders who try to capitalize on price fluctuations. Lower spreads translate to reduced trading costs, making it an attractive feature for Forex traders.

Who relies on low spreads?

There are two types of traders: swing traders (day traders) and scalpers. Day traders and swing traders employ trading strategies that aim for medium to long-term trades. They can have open positions from several hours to several days. They do not get affected by relatively high spreads, as they usually target considerably larger price movements where low spreads are typically irrelevant. Scalpers, on the other hand, rely on lower spreads heavily as they make profits from extremely short price movements. Because of this, spreads above 0.2 pips can be an expensive spread for scalpers, while for swing traders even 2 pips won’t affect performance that much.

You pay the spreads twice!

The main factor why scalpers and day traders, in general, may be sensitive towards spreads is traders pay spreads twice each trade, during the opening of the trading position and closing of the positions. So, the spreads must be paid twice and every spread must be multiplied by 2. If a broker has 1 pip spread it means the trader will have to pay 2 pips to open and close the position. This detail is critical to understand for all traders, especially for scalpers. Spreads and commissions can add up quickly and render profitable strategies useless. This is especially true if spreads are high, above 1 pip. The industry average spread for Major pairs is usually around 1 pip. Anything above 1 pip is considered expensive and below cheap.

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Importance of Low Spreads in Forex Trading

As we have listed above, the importance of low spreads can not be underestimated in FX trading. For scalpers, lower spreads are one of the most important costs they have to pay for trading. Below we will list the reasons why low spreads are so important.

Cost efficiency

Intuitively, low spreads directly contribute to cost efficiency, enabling traders to make higher profits while paying lower commissions. This is particularly critical for scalpers who frequently enter and exit the market. Any trading strategy that relies on a few pips for profits will be affected by the size of the spreads. Making 6 pips profits while paying 2 pips in spreads can reduce profitability and risk-to-reward ratio significantly.

Increased Profit Potential

Tight spreads allow traders to achieve breakeven or profitable outcomes more quickly as the markets need to move as far in their favor to cover the cost of the spread. If we compare two traders who trade with 1 pip and 2 pips spreads we can see why spreads matter in FX trading. A trader that pays 1 pip every time they execute a trading position has to pay 2 pips in total to close the trade. If they make a 4 pips profit they will receive a 4-2=2 pips profit. For traders with 2 pips spreads the cost of opening and closing a trading position is 2 + 2 = 4 pips. If they make 4 pips they will have to pay these 4 pips back to brokers making 0 pips profit. As we can see, traders with lower spreads can outperform those with higher spreads with the same trading strategy.

Enhanced risk management

Lower spreads allow traders to implement more precise stop-loss and take-profit levels. This is because lower spreads do not affect profitability negatively allowing traders to make several pips and still be in profits while higher spreads force traders to force larger price movements which are not easy to catch. Risk management is especially important in prop trading as traders typically have to obey strict risk policies and rules. Having the lowest spreads enables traders to have much lower drawdowns and operate within the set risk parameters. Traders who are forced to seek larger movements to cover high spreads are more susceptible to larger losses exposing them to daily loss limit threats.

Improved trading conditions

This one is also intuitive as Forex prop firms that offer low spreads often provide improved trading conditions overall. This includes faster execution speeds and lower slippage, creating a more favorable trading environment. Lower spreads allow traders to operate within the risk parameters set by the prop firm and meet profit targets faster with less market risk exposure.

How to Choose the Right Forex Prop Firm with Low Spreads

Selecting prop firms with the lowest spreads can be tricky as the firms generally focus on their rules of challenge and funding options. To access spreads often traders need to register an account and try it themselves. However, the easiest way to find out about spreads is either to contact the support or to search which broker is the firm’s partner and what are their typical spreads. Here is a list of methods to find prop firms with lower spreads:

Reading our list in this post

At the end of this post, we have a list of prop firms with the lowest spreads on Forex pairs.

Contacting the firm support

Ask the firm about their spreads for assets you are interested in trading with their funding. If the support has no clear information about the exact spreads, ask them who is their partner broker. After finding out the information about their pattern broker head to the broker’s website and find what their typical spreads are. If support does not disclose information about spreads and partner brokers it may considered a serious red flag.

Opt for the best prop firms

Popular and well-established prop firms usually also offer low spreads, but this is not always the case. Some firms are reputable but offer industry-average spreads around 1 pip, which may not be attractive for scalpers.

The best Forex prop firms with the lowest spreads

Below is the best selection of prop firms that offer the lowest spreads.

Scalping Strategies: Maximizing Profits in a Low Spread Environment

The best way to utilize low-spread trading opportunities is to develop scalping strategies that target few pips movements. To find small movements successfully it is necessary to always filter the main trend. The 200-period Exponential Moving Average (EMA) is the most widely used filter to ensure traders only open orders in the main direction of the trend. In this case, if the price is above 200-EMA trader only seeks buy signals, and if the price is below 200-EMA they only seek sell signals. If the price is near the 200-EMA and is moving sideways, it indicates indecision and the best way is to avoid trading during these times.

Another critical factor for successfully developing and employing scalping strategies for low spreads is to avoid trading during the News. Macroeconomic news such as central banks’ interest rates, employment, and similar news have a tremendous impact on the price volatility of Forex markets exposing traders to increased risks. After the rules for filtering trends and volatile trading hours, it is necessary to develop signals for opening buy and sell positions. This can be implemented via two moving averages crossover where one moving average has a lower period, while the second one has a longer period. The short-period EMA is called and fast-moving average and the longer-term moving average is called a slow EMA. When a fast EMA crosses the slow EMA it is a buy signal and the opposite is true for sell signals. Ensure the signal aligns with the main trend filter and there are no important news releases in a short period to increase the chances of success. Some trailers might also add a Stochastic oscillator to further filter the quality of trading signals.

Conclusion

In the fiercely competitive landscape of Forex trading, choosing the right prop firm can significantly impact traders’ profitability and success in the competition. Prop firms have strict risk rules which all traders must follow. Higher spreads make it more difficult for traders to operate within tight risk parameters set by Forex prop firms. Selecting a prop firm that offers the lowest spreads is a crucial decision that aligns with cost efficiency, increased profit potential, improved risk management, more favorable trading conditions, and so on. The easiest way to find reputable prop firms that offer the lowest spreads is to proceed and read our list of top firms with low spreads, or to contact the support of the firm you are going to start trading with.

When developing a scalping strategy to take advantage of low spreads it is essential to filter the main trend direction and avoid trading during the news.