When spreads information is transparent, you can understand not only what you are paying, but under which circumstances and why. You should be able to figure out the presence—or absence—of value. The following questions will help you frame your evaluation of forex brokers and their claims with respect to spreads. OANDA's answers to these questions are also provided.

• What are the typical spreads?
• Are the spreads fixed or variable?
  • If fixed, are there any exceptions to the fixed-spread policy?
  • Are there any restrictions on trading or entering orders around news announcements?
• Do the spreads differ depending on ticket size?
• Do all clients on your platform get the same spreads, all of the time?
  • Are there clients who get rebates or volume discounts?
• Does a portion of the spread for any client go to anyone other than the firm?
• Or more generally: does anyone other than the firm itself get paid as a result of your trading activity?
• Does the firm have an open, uncensored forum where their clients can post trading experiences?
• How does the demo platform differ from the real platform in terms of execution and spreads?
• What is the minimum to open an account, and what is the minimum trade size?

What are the typical spreads?

You need to know the typical spreads not just for one or two of the more popular currency pairs, but for all of them. You don't want to be constrained from trading new pairs later on. "Loss-leader" pricing has no place in forex markets.

OANDA's response:

OANDA publishes real-time spreads for all traded currency pairs, and indicates if they are wider due to market events.

OANDA is committed to offering the lowest spreads possible, and lets you see the spreads that were in effect for the previous seven days for all traded currency pairs.

Are the spreads fixed or variable?

The interbank forex market has variable spreads. If you are trading fixed spreads you are in effect paying for an insurance premium—unless you trade only around news events when markets tend to be more volatile—since fixed spreads are typically higher than variable spreads. Is it worth it? That depends on your trading pattern. (But if you choose fixed spreads, be sure to ask the next two questions too.)

OANDA's response:

OANDA has variable spreads. As in the interbank forex market, spreads will widen dynamically during times when liquidity is tight. This widening occurs typically around news announcements or off-market hours. OANDA FXTrade allows you to trade all weekend, but spreads will be significantly wider during weekends when liquidity is almost non-existent.

Are there any exceptions to the fixed-spread policy?

If you read the fine print, there may be. And if so, it's like you are paying for insurance without getting full coverage. Make sure the exceptions are clearly spelled out. Precisely spelled out. And find out when the policy on exceptions has last changed so you can gauge how frequently they may change the rules.

OANDA's response:

OANDA does not offer fixed spreads. It offers the same variable spreads to everyone, with no exceptions.

Are there any restrictions on trading or entering orders around news announcements?

Again, if there are, then it's like you are paying insurance for nothing. Make sure any restrictions or conditions are clearly spelled out.

OANDA's response:

On OANDA FXTrade there are no restrictions on trading or entering orders around news releases.

Do the spreads differ depending on ticket size?

In the interbank market, spreads are often wider for larger ticket sizes. When you review typical spreads, it is important to understand if spreads vary depending on ticket size, and what the spreads are for the various ticket sizes. All too often, brokers offering matching platforms will display very tight spreads, but these spreads apply only to very small ticket sizes.

OANDA's response:

On OANDA FXTrade all spreads are the same, whether the ticket size is $1 or $10M or anything in between. (FXTrade does not support ticket sizes above $10M at this time; in order to trade larger amounts, trades must be split into tickets of $10M maximum.)

Do all clients on your platform get the same spreads?

Or does the spread depend on who you are, how large your account is, or who introduced you to the broker?

OANDA's response:

OANDA does not discriminate among its clients. All clients trading on FXTrade at the same time get the same spread.

Are there clients who get rebates or volume discounts?

Even if everyone gets the same published spread, are they really? If some clients are getting rebates or volume discounts, guess who is paying for them? If different clients are getting different spreads, then find out what you can do to join the privileged group getting the best spread.

OANDA's response:

On FXTrade, everyone gets the same spread. Period. No one gets any form of rebate or volume discount. Instead, we work on reducing the spread further for everyone.

Does a portion of the spread for any client go to anyone other than the firm?

Forex brokers frequently agree to pay third parties (for example, the introducing brokers or sales agents) a portion of the spread on your trading activity. While some firms argue that their introducing brokers are not really getting a portion of the spread, don't be fooled. Ask if the introducing broker is being paid in direct proportion to your trading activity. There is nothing inherently wrong with this practice, but it is a fact worth knowing. Only then can you decide if the introducing broker is providing enough added value for the amount you are (indirectly) paying him. And you should also ask if you could get better spreads by cutting out this middleman and trading directly.

OANDA's response:

The spreads on OANDA FXTrade are already very tight, often tighter than the interbank market spreads, so there is no room to give anyone a piece of the spread. In particular, OANDA does not pay introducing brokers, sales agents or anyone else any portion of the spread.

Does anyone other than the firm itself get paid as a result of your trading activity?

You'd be surprised, but some firms pay their traders and sales agents in proportion to the firm's profit on your trades—a nice conflict of interest that raises inevitable questions about quality of execution.

OANDA's response:

OANDA does not pay any third party as a result of your trading on FXTrade.

Does the broker provide an open, uncensored forum where their clients can post their trading experiences?

Open, uncensored forums are a good place to get an initial understanding of what existing clients think of the broker's platform and quality of execution. It is important to have access to all posts for at least the last 12 months. If this sort of information is not available, ask why not. And note that "chat rooms" are something different, typically because their purpose is to avoid warehousing the historical information you may want to review after the fact.

But beware: since the Internet allows for anonymity, it is often very difficult to determine who is really behind writing a post. How do you separate real concerns, real problems, and real compliments from, say, posts by agents working on behalf of a particular broker? There are some generally recognized guidelines. Count the total number of posts made by any individual, and read some of their previous posts to judge their credibility. Discount extreme comments by traders who are new members or who have posted only a few messages. These individuals are most likely guerilla marketers who blitz forums, sometimes overtly, at other times covertly.

OANDA's response:

The OANDA FXMessage forum at http://fxtrade.oanda.com/community/forex_forums.shtml keeps every complaint ever posted by our clients. You will also find many compliments and insightful comments. After reading a few pages, you'll wonder why other firms don't have a forum like this.

How does the broker's demo platform differ from their real platform in terms of execution and spreads?

A demo platform can be useful to observe how prices and spreads vary under different market conditions. And it can give you an idea of how good the quality of execution is—but only if the demo platform behaves exactly the same as the real one. Beware rejected trades, delayed execution, price-skewing and stop-hunting that only occur on the real platform. Sometimes, even the spreads may be different!

Is there a time limit or "trial period" for using the demo platform? (One of the best uses of a demo platform is to test new trading strategies over time.)

OANDA's response:

OANDA takes every effort to make its demo platform, FXGame, as similar as possible to its real platform, FXTrade. In principle, the rates and the spreads are exactly the same.

Note several differences you should be aware of:

1. FXGame is used to test new software upgrades before the upgrades are released on FXTrade, so the two platforms may support slightly different features at times.
2. Because FXGame and FXTrade support different sets of users, the load on the two systems is different. Typically—but not always—FXGame has a higher load, increasing the possibility of delayed execution.
3. FXGame and FXTrade are run out of different data centers, so internet connectivity delays on the two platforms may not be uniform.

Note that FXGame is one of the few demo platforms you can use as long as you like. And opening an FXGame account will not result in any sales calls or spam emails.

What is the minimum to open an account, and what is the minimum trade size?

Unfortunately, the only way to truly test quality of execution is to try the real thing. Some brokers will impose a minimum account opening balance or require a minimum trade size and as a result it can be prohibitively expensive to test a platform.

OANDA's response:

The minimum amount required to open an FXTrade account is $1, and the minimum trade size is also $1. And trading $1 gets you the same spread as trading $100,000 or $1M or $10M. Opening an account with $1 probably doesn't make much sense, but you can get a realistic sense of FXTrade's quality of execution and real spread behavior with as little as $100.

Asking these tough questions and then sorting out the answers carefully can tell you a lot about a broker.