Variable spread account

Before understanding in detail what the variable spread account is, it is
advisable to precisely define the concept of spread.

The spread, in the trading field, represents the difference between the
purchase price of an asset (called Bid) and the selling price of the same
(called Ask).

Here is an example to better understand the spread: let’s assume we are
trading on a currency pair, British pound against Japanese yen. The
expected exchange rate is 166.97 / 167.03. This means that the
differential, or the spread, is 6 Pips. The spread is calculated
automatically by the broker within the transaction costs and, essentially,
is the broker’s source of income on the operation.

The variable spread account is an account that provides for the presence
of a spread with fluctuating values: this depends each time on the sell
(ask) and buy (bid) values ​​that are revealed when we carry out trading
operations.

The fluctuating nature of the variable spread makes it impossible to know
from before what the spread affecting our operation is. As a rule, the
variable spread is usually lower than the fixed spread, but – precisely
due to its random nature – it can also undergo strong and sudden
increases.

For those who want to open a trading account, the choice is therefore
distinguished between variable spread account and fixed spread account.

The first, the variable spread account, as already mentioned, provides for
a floating variance, which changes according to the asset considered and
the market conditions that occur before the trading action.

In the fixed spread account, on the other hand, the difference between Bid
and Ask is always constant, and is established by the broker at the
beginning of the relationship.

Is it better to choose a variable spread or a fixed spread account?

There is no better choice than others. As we have seen, the fixed spread
is usually slightly higher than the average of the variable spreads, but
these – on the other hand – can also be affected by sudden increases.

In general, the variable spread is therefore advisable for those who
decide to operate on markets that are not too volatile, because where the
uncertainty of the assets is high, the variable spread usually settles on
higher variance.

In any case, the variable spread account is recommended for experienced
traders who operate in a very liquid market, preferring less volatile
assets and above all opening very short positions.

The risks of a variable spread account are closely linked to the
volatility of the securities: if we decide to adopt this strategy for
investments over a long period we must be aware how external news or
liquidity can lead the market to face big changes, with a excessive rise
in the spread. Situation that could force us to pay high trading fees.