Floating Spread Trading Accounts
The floating spread accounts are becoming more popular and called-for nowadays. The difference between seller’s price and buyer’s price (Ask and Bid) in operations with the usage of this account type fluctuates within certain limits, subject to various factors.
The floating spread, commonly used on the Forex market, usually is considerably lower, as the order execution with this type of accounts is processed by NDD technology (Non Dealing Desk), that means broker’s non-interference, therefore, the orders are handled by Market Execution scheme, without re-quotes, at the current market price.
The floating spread: order execution principles and methods
The floating spread fluctuations are caused by the exchange market itself. The difference, when trading with such kind of accounts, might vary from 1-2 pips at a moderate market activity, increasing to 40 pips in periods of revival of business activity. This type of spread is very close to criteria of the interbank market, and adds the elements of unpredictable nature in the bidder’s strategy, impeding the evaluation of the current events.
Trader, who analyzes the floating spread charts by the instrumentality of technical analysis, sets the time parameters, in which the spread’s size reaches its highest point of minimum and maximum value. At minimum spread of 0 or 1 pips, two positions should be opened, both for sale and purchase, with the next following close of both transactions, when the spread reaches its maximum. As a result the trader will realize a profit multiple of the maximum spread.
This strategy, implying the use of the floating spread accounts, is effective when minimizing the risks due to the fact, that the profit probability in this case does not depend on the currency price, but only on the spread’s size.
Also, when opening the positions with tight spreads, the trader might be sure, at least, in make-out of his trade operations, even counting on profit-making.
Floating spread accounts – benefits and advantages
No re-quotes orders processing method by the Market Execution scheme, included in this type of accounts, is more convenient as against the fixed spread for the bidders, who hold a large quantity of trade operations. However, it is important to realize, that the trading at the current prices and without re-quotes often is accompanied with slippage, which impairs the price when executing the order. But the slippage itself could be positive, for benefit of trader.
Therefore, in general, the order execution without re-quotes and with a low spread is more efficient and profitable for trading activity carrying-out. Concerning the Forex brokers providing the floating spread accounts, they draw profit from the trader’s commission for each transaction, or previously specified interest, as an increase to the spread.