Zero spread is a fairly unique option for a broker. After all, we all know that the spread, even the minimum one, will still be greater than zero. And this is as true as the fact that BID and ASK prices are very rarely at the same level. And now about forex brokers with zero spread.
What it is?
These are the moments when the buy and sell prices are at the same level. But, this applies to a certain tool. For example, EUR/USD is considered. Selling price at a mark, for example, 1.06. At the moment, when the purchase price gets the same value, we can say that there is now a zero spread in the market. And this is the perfect time to open a trade.
By opening an order, the trader gets a huge advantage, because now he does not have to lose profit equal to the spread. The order is opened not in the negative zone, as usual, but from scratch. Brokers have an unspoken agreement where certain factors are met: when there is a zero spread in the market, orders are executed instantly. But we know that the value of the spread is the profit of the broker.
And we understand that a zero spread increases a trader’s profit. It would seem that why would a broker execute an order to open a deal at such a moment. After all, the broker can easily arrange slippage during this period of time.
Surely that would be done by a broker who would never miss a few pips of profit. Various breakouts and slippages of the price, you can call it whatever you like.
How beneficial is it?
There is a zero spread on the market, and there is an order. This means that the order must be executed exactly at the price at which the order was received. Not a point more, not less. And it’s good if the trader is counting on the medium-term period of an open order.
The spread, it seems, is not a hindrance. But if a trader practices scalping, and there are many of them, or aggressive scalping, when every point counts, what then? Losses. But in conditions of zero spread, there are no losses. Each point that went to the spread now goes to the profit treasury. Naturally, scalpers will appreciate it.
What is a zero spread, we understood. But what does zero spread have to do with brokers? The most direct. Probably few people know, but brokerage companies are implementing the ECN system.
The system itself is not new and is often used by brokers. But the FIX protocol, according to which the ECN system works, has been used by companies for a long time. This is a data exchange protocol between dealers and brokers. This is the standard currently used for:
- instant data transfer from any financial market to a dealer;
- transfer of information to the broker.
Now we understand that the faster the data transfer, the faster the broker receives data from the market. Accordingly, the trader receives the best prices. Thus, some brokers have achieved that the trader is provided with quotes even at the moments of zero spread.