Published Fri, Apr 11 2025
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Most brokers offer variable spreads, while very few provide fixed spreads. The difference between the two can significantly impact your trading profits. In this article, we will explain what to look out for and why it is crucial to understand the distinction between them.
What Are Variable Spreads?
A variable spread means that the difference between the bid and ask price changes based on market conditions.
For example, at one moment, GBP/USD might be quoted at 1.2419 – 1.2419, meaning the spread is zero. However, a few minutes later, the same pair might be trading at 1.24293 – 1.24301, with a spread of 0.80 pips.
Variable spreads are influenced by market liquidity and volatility. When there is high trading activity, spreads are generally tighter. During low-liquidity periods, such as after market hours, spreads tend to widen.
Many brokers advertise spreads “from zero”, but this can be misleading if those zero spreads only occur briefly or under specific conditions. In reality, most traders experience wider spreads throughout the day.
Do Brokers Widen Spreads for Profit?
This depends on the type of broker:
- Market Makers (Dealing Desk Brokers): These brokers set their own spreads and may widen them during volatile events (e.g., major news releases) to manage risk or increase profit. However, during high-liquidity periods—like when the London and New York sessions overlap—they may keep spreads tight to stay competitive.
- ECN/STP Brokers (No Dealing Desk): These brokers route orders directly to the market, meaning their spreads fluctuate based on supply and demand. During high activity, liquidity providers compete, keeping spreads low. When markets are quieter, there are fewer participants, leading to wider spreads. Unlike market makers, ECN brokers earn money through commissions rather than spreads.
Why Can Spreads Be Zero?
In highly liquid conditions, such as during major trading session overlaps, there may be enough buyers and sellers to push bid and ask prices so close together that spreads temporarily reach zero.
However, this doesn’t always last—if volatility spikes (for example, due to economic news), spreads can widen even in high-activity periods. Large price swings create uncertainty, and brokers may adjust spreads accordingly.
Key takeaways on spread behaviour
- High liquidity → Tighter spreads.
- Low liquidity → Wider spreads.
- High volatility → Can go either way, depending on broker risk management.
What Are Fixed Spreads?
A fixed spread broker offers a predetermined, unchanging spread for each asset, regardless of market conditions. This means that whether the market is volatile or stable, the spread stays the same.
For example, if a broker sets the spread for GBP/USD at 1 pip, it will remain at that level throughout the trading day. This consistency can be beneficial for traders who prefer predictable trading costs, especially those using strategies that rely on stable spreads.
When the real FTSE index is closed, even fixed spread brokers may widen their spreads to reflect lower liquidity and market activity, such as increasing the FTSE spread from 0.60 during regular trading hours to a higher level overnight.
Choosing the right spread type
Both variable and fixed spreads have their advantages:
- Variable spreads can be lower during liquid market conditions but may widen unpredictably.
- Fixed spreads provide cost certainty but may be higher than the lowest possible variable spreads.
Understanding how spreads work is crucial when selecting a broker. At TraderGuide, we compare brokers to help you find the most transparent, low-cost trading options.
