Although existing only in a small number of brokers, fixed rate is a useful feature for any trader. Here are the benefits of using fixed rate from brokers.

The foreign exchange market is currently the biggest financial market with traders from all across the world actively participate in it. Not only does it promise unlimited profits in a short time, but it also offers easy access to the market. By using online trading platforms, any trader from any part of the world can sell and buy foreign currencies in an easy, fast, and effective way.

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However, there are also some challenges in forex trading. First of all, it's important to understand that not all currencies are equal in value. Some currencies are more valuable than others, hence the variable prices on the market. Therefore, every transaction must be traded using an exchange rate – the rate at which one currency can be exchanged for another.

In other words, it is the value of another country's currency compared to that of your own. And just like the price of any asset, the exchange rate is basically the price at which you can buy that currency or "exchange" it for your own.

Often, the exchange rate can be quite a stressful matter for traders because it affects some of the vital aspects in forex trading, such as deposit and withdrawal. For instance, before depositing, you might want to consider whether your broker offers a better rate than another broker, choose which payment method has the best rate, when is the best time to deposit, etc. Typically, such thoughts occur to traders who use currencies other than the standard currency like USD and EUR.

fixed rate

Some brokers offer a fixed rate feature for each client's deposit and withdrawals to address this issue. While this feature is still pretty uncommon in forex brokers, it actually has several advantages for traders. Here's a brief explanation about the fixed rate and its benefits.

 

Fixed Rate in Forex Brokers

Before opening a trading position, traders must register in a broker, open a trading account, and deposit some funds. Even though it doesn't necessarily affect the outcome of the trade itself, but the process of deposit and withdrawal should not be underestimated. In fact, it should be one of your top considerations when it comes to choosing a forex broker.

As two of the basic features offered by a broker, deposit and withdrawal can be an early indicator to determine the broker's commitment to supporting their clients. If such a simple matter is already problematic, what about the rest of the features?

Almost all leading forex brokers offer great deposit and withdrawal features. Usually, a good forex broker would offer a wide range of payment methods ranging from the most traditional options such as wire transfers to the more advanced choices like e-payments. Not only that, the process of deposit and withdrawal itself should be straightforward and has no complicated requirements.

To further accomplish a good experience in deposit and withdrawal, some brokers offer a fixed rate feature. How does it make any difference to forex trading? Is it more profitable?

 

The Benefits of Fixed Rates

Fixed rate in forex brokers is one of the additional features that basically refer to the deposit and withdrawal rates set at a certain level. To put it simply, when making deposits and withdrawals, the currency exchange rate will always be the same (fixed). Here are the benefits of fixed rate:

 

1. Makes It Easier to Calculate Deposits and Withdrawals

Normally, traders must use exchange rates when depositing or withdrawing funds. Most forex brokers would require traders to deposit or withdraw in US Dollars as it is the most stable and standard currency at the moment. Therefore, traders who don't use US Dollars must use the exchange rate and calculate the amount of money needed for the transaction.

See also: Currency Rate Calculator

As the currency exchange rate itself changes all the time, your deposit amount will not always be the same.

For instance, with a USD/AUD exchange rate of 1.36, you would need to spend AUD 136 if you want to deposit USD100 in your trading account. At other times, the Australian Dollar (AUD) may weaken to 1.38. Since you need to deposit another $100, then you have no other choice but to deposit AUD138. Such condition can be hard for traders because they would have to calculate the exact amount needed before depositing and decide when is the best time to deposit.

However, you won't encounter such problem if you use the fixed rate. With this feature, the broker will determine the standard rate for deposit and withdrawal. Let's say the standard rate is set at 1.35 AUD per $1. Then it means that whenever you deposit your money, the exchange rate will always remain the same. If you want to deposit $100, then you will need AUD135 no matter the actual exchange rate at the time.

The same concept applies to the withdrawal process. If the broker doesn't apply a fixed exchange rate, then the withdrawal amount will fluctuate depending on the current rate. Thus, you would have to calculate the end result from time to time. The profits that you get can't be wholly realized when the exchange rate is not in your favor. On the other hand, a fixed rate would allow you to withdraw funds at the same rate at any time. Your withdrawal amount would no longer be affected by market fluctuation.

 

2. Offers Flexibility

Just because the rate used by the broker is always the same, doesn't mean it limits your movements and makes forex trading less flexible. Quite the contrary, fixed-rate actually offers more flexibility because you can make deposits and withdrawals at any time without worrying about the changes in currency exchange rates.

Profit and loss are essential to most forex traders. So they are usually very precise when it comes to calculating how much they earn or lose in a trade. This also means paying much attention to the dynamics of the currency exchange rate that they use, whether the currency is strengthening or weakening when they make deposits or withdrawals. Therefore, there's a time barrier that limits their decisions in forex trading.

Imagine if your trading account really needs an extra deposit when the currency is weakening drastically at that moment. You might have to postpone it until the currency value goes back up again. The same dilemma occurs when the currency is strengthening, but you need to withdraw your funds. You might end up postponing it too even though you actually need the cash.

Realize it or not, the fluctuations in currency exchange rates greatly affect your forex trading freedom. This usually won't bother many traders because most of them are used to the standard trading system, not the fixed rate. But now that there is an option to use fixed rate in certain brokers, making deposits and withdrawals are even easier than before. You can deposit or withdraw your money at any time with no limitations and concerns.

 

3. Eliminating the Risk of Transactions Spread

The difference of exchange rates would automatically create a spread. Keep in mind that this is different from the forex trading spread. While the forex trading spread refers to the difference in the bid and ask price, the deposit and withdrawal spread refers to the difference in the deposit and withdrawal rate.

So let's say that the deposit rate in USD/AUD is AUD1.33 and the withdrawal rate is AUD1.38, you will automatically pay for the AUD0.05 difference for every deposit and withdrawal you make, multiplied by the amount of money you use. If your deposit is USD100, then you would have to pay a USD5 spread.

The situation would be different in fixed rate brokers because the deposit and withdrawal rates are always the same, so there's no spread that you need to pay. For example, if the broker determines that the rate is 1.35 AUD per $1, this rate will be used to deposit and withdraw. You won't have to worry about spreads anymore.

 

The Bottom Line

While it seems simple, exchange rates in deposit and withdrawal can make a huge difference in your trading experience. If you're the type of trader that likes to frequently make deposits and withdrawals, you might have to thoroughly think about when is the best time to do it in order to get the best rate possible.

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But with a fixed rate broker, you won't have such issues anymore because the rate always stays the same both for deposit and withdrawal. You can request a transfer at any time without worrying about the exchange rate and additional costs. However, bear in mind that you might not find this feature in any broker. Only a small number of brokers actually offer fixed rate, so make sure to check it carefully.