Most of the time, you do not have an order book available with such brokers. The broker works with a hidden BID ASK spread. The stock is traded on the exchange, but your order is not routed to the exchange.
The business model works like this: there is an additional spread in the stock trade. The broker then buys the stock on the real exchange and resells it to the clients. The spread difference is his profit. This can also work with so-called "dark pools". Hedge funds or banks act as counterparties and sell or buy the stock on to the trader. The broker only forwards the order flow.
Spread for futures (forward contracts)
Futures contracts are very liquid and I can tell you from my experience that there is hardly any spread here. You only have to be careful in case of high volatility. When there is news or events, the liquidity becomes smaller and the market moves fast. There may also be slippage and you will get a worse execution.
Spreads in Forex and CFD trading
Forex and CFD brokers always mark out a spread on the current market price, depending on the account model. Behind these brokers are liquidity providers who provide the prices. The spread difference is the broker's profit, this is how they make money. However, some Forex and CFD brokers also offer accounts without an added BID ASK spread. But there you will have to pay a trading commission depending on the volume. However, a spread in Exness mt5 or mt4 can still occur, because they are over the counter financial products. The spread depends on the market and liquidity.
Forex and CFD brokers earn money through an additional spread
Forex and CFD brokers can intervene in the BID and ASK spread. Many providers add an additional spread to the normal market to make money. A commission or fee per order is then omitted. However, most of the time a broker offers both models in different accounts. There is often an account with additional spread without trading commission and an account with direct spread and a trading commission.
In addition, the broker may hedge by a spread in volatile market situations. In case of too fast movements, a slippage may occur and you will not be executed at the desired price. To avoid this, a spread is added. In addition, the broker itself must get the price executed in the market. In the further course of this page I recommend providers with a very low spread and fees.
Brokers and the BID ASK Spread:
- There are brokers that make money from an additional spread
- There are brokers who do not add an additional spread but charge a trading commission
- The broker can hedge against high volatility and slippage by charging a spread
Where is there a high BID and ASK spread?
In the table below I would like to clarify where you can expect a high or low BID and ASK spread: