The spread is the difference between the bidding the asking price is called the spread for a particular currency pair. Forex brokers make money on the spreads making the difference wider than it is on the actual market. For example, the forex broker pays a price of 1.3600 for buying. The broker will then offer you to buy this currency for 1.3601. Of course the spread always stays around the actual price, however, when you buy, you get one end of the spread and when you sell you get the other end of it.
There are two competing models of spreads offered by forex brokers. The fixed and the floating spreads. The fixed spread model guarantees that you pay only a certain amount of pips when you buy or sell. The floating spreads model implies that the broker finds the best deal on this particular pair so that the spread is minimal. The both models have their advantages and disadvantages.
An example of floating spread broker is the XM. They claim that they keep spreads as narrow as possible by getting the best prices from their providers. They also claim to have 70 competing liquidity sources so that they pricing optimization software updates the currency pair three times per second to offering optimal spreads.
They say that XM works with the variable spreads, just like the interbank forex market. Because fixed spreads are usually higher than variable spreads: in case you accept fixed spreads, you will have to pay for an insurance premium.
In addition XMarkets offers fractional pip pricing to get the best prices from its various liquidity providers. Instead of 4-digit quoting prices, clients can benefit from even the smallest price movements by adding a fifth digit (fraction).
XM.COM review here
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