Skip to main content

What Is Spread in Forex?

what is spread in forex_ equidious research

Forex Spread:

The foreign exchange spread (or bid-ask spread) refers to the difference in the bid and ask prices for a given currency.
The bid price refers to the maximum amount that a foreign exchange trader is willing to pay to buy a certain currency, and the ask price is the minimum price that the currency dealer is willing to accept for the currency.

The Bid-Ask Spread Defined

The forex spread represents two prices: the buying (bid) price for a given currency pair, and the selling (ask) price. Traders pay a certain price to buy the currency and have to sell it for less if they want to sell back it right away.
Example:consider that when you purchase a brand-new car, you pay the market price for it. The minute you drive it off the lot, the car depreciates, and if you wanted to turn around and sell it right back to the dealer, you would have to take less money for it. Depreciation accounts for the difference in the car example, while the dealer's profit accounts for the difference in a forex trade.

How to Manage and Minimize the Spread

You have two ways of minimizing the cost of these spreads:
  1. Trade only during the most favorable trading hours, when many buyers and sellers are in the market.
    As the number of buyers and sellers for a given currency pair increases, competition and demand for the business increases and market makers often narrow their spreads to capture it.
  2. Avoid buying or selling thinly traded currencies. Multiple market makers compete for business when you trade popular currencies, such as the GBP/USD pair. If you trade a thinly traded currency pair, there may be only a few market makers to accept the trade. Reflecting the lessened competition; they will maintain a wider spread. 
  3. Economic/Political risks: Nations that experience tumultuous political climates or unstable economies will typically have their currencies associated with high risk. Such economies usually have fairly high inflation rates and are do not have a disciplined approach to monetary policy. As a result of this, the bid-ask spread will become larger. It is because dealers will perceive the currency as a high-risk investment, and thus will have no choice but to sell the currency at a premium in anticipation of higher investor returns.In addition, bidders will not consider the currency a viable investment and will offer lower and lower price for it. Thus, the bid-ask spread will widen and, as discussed above, trade volumes will decrease.
Join 300,000+ traders who stay ahead of the market, submit your details with us by filling our CONTACT FORM.
For the Best Forex Signal| Accurate Stock Signal| Profitable Comex Signals,Try Equidious Research Services. We have a team of best and well experienced Research Analysts.
Trading is an art of making handsome amount.
Enjoy Trading!

 
Labels:

Comments

Post a Comment

Popular posts from this blog

What is Bullish and Bearish Market?

Trading has a language of its own, and if you are starting out long or short,  bullish and bearish  are trading terms you will hear frequently. Bullish and Bearish are simply terms used to characterize trends in the currency, commodity or stock markets. The terms bullish and bearish are often used to describe the conditions in the market or the  sentiment of investors .  They are very important terms and are used in nearly all types of trading, from  currencies  to stocks.  Traders can take advantage of both  bullish and bearish markets  if they have sufficient knowledge of the market conditions that are associated with these cycles.  When traders understand the meaning of bearish and bullish and are able to identify the cycles, they will know how to profit off of any market condition. What is the difference between Bullish and Bearish Market? Bearish and  Bullish  are simply terms used to characterize trend...
Post a Comment
Read more

Fundamental Analysis-Impacts of Non Farm Payrolls Data on Forex Market

Non farm payrolls in the US increased by 164 thousand in April of 2018, following an upwardly revised 135 thousand in March and well below market expectations of 192 thousand.  The most important payroll statistic that is analyzed from the report is the  non-farm payroll  data, which represents the total number of paid U.S. workers of any business, excluding general government employees, private  household employees , employees of  nonprofit  organizations that provide assistance to individuals, and farm employees. Non Farm Payrolls Indicator The Non Farm Payrolls indicator measures the net change in the number of people employed within the U.S. economy in jobs other than those which are farming or agriculture related. When the NFP data is rising, it means businesses within the United States are hiring more staff, usually in response to improved economic conditions and increased demand for their products or services either domestically or overseas...
1 comment
Read more

5 Tips For Part-Time Forex Traders

The problem with part-time trading is that trading itself is very difficult and that there are many obstacles that one needs to overcome before becoming consistently profitable. Who can be Part-Time Traders?  The group of people includes students, young professionals, and old retirees – basically anyone who has to allocate most of his or her time to other endeavours, but still want to dip their hands into the markets. Trading Method or Trading Style Stick to a forex trading method or style that suits your schedule is very important in part time trading. The biggest problem for part-time traders is time . If you only have an hour to commit to trading every day, this can severely limit your options. In that particular situation, you may want to take a look at scalping or maybe switching to longer-term swing and position plays. In any case, the lesson is that before settling on a trading style, figure out your schedule and move on from there. Try to Increase Your Tradin...
1 comment
Read more