forex, Forex trading

What is a spread in trading

May 25, 2019

The spread in trading is the range between the price at which the paper or currency is sold and the price at which they are bought at the same time. E is  different in terms of value , as buyers want to buy cheaper, and the sellers to sell as expensive as possible. 

In any school of trading, this is one of the most difficult topics to deal with thoroughly. At this difference (spreads) earn honest brokers . And since each brokerage office has its own tariffs, then the earnings are also different.

It so happens that brokers earn exclusively not spreads. Therefore, their value can be as high as possible. The quotation of any product is formed in the process of bargaining between the seller and the buyer . Minimum spreads are set by market makers . As you move to the final trader, the size of the spread increases. And in accordance with it, the earnings of dealing centers and commission brokers increase.

What is the essence of spreads in trading

The higher the spread value , the higher the market liquidity . When trading in popular pairs on Forex, spread values ​​are small . On one lot, the value can be up to $ 20 or 2 points.

Spread size = cost of the exchange transaction . Remember that it is not traders who sell and buy on the exchange, but brokers . Although the reality is that their presence in the work on the stock exchange imperceptibly.

When a trader opens a deal, he immediately gets a loss , which is equal to the value of the spread . To transfer a deal to the break-even point , it is necessary to change the quotations in the direction of the transaction, at least 2 points . And to make a profit, then more.

A spread is a kind of commission that is automatically withdrawn at the time of opening a transaction. Stock exchanges themselves regulate market liquidity by imposing certain limits on the spread. Trade immediately stops as soon as their maximum values ​​are reached .

What are Forex spreads and their types?

Fixed

By name, you can guess that its value does not change, regardless of the speed, demand for currency or supply . Here you can predict the approximate price change and calculate the amount of profit.

Floating

It is more common than fixed. And fluctuates within a certain range depending on market conditions . The lower limit of the range is set by the broker.

With a calm market, the value of the floating spread ranges from 2 to 5 points . When the news comes out , the value can rise to 50 and up . Floating spread is unprofitable when trading with robots , because automatic systems do not know how to respond quickly to changing values.

What influences the size of the spread in Forex?

  • Currency liquidity
  • Transaction volumes
  • Market situation
  • Customer status

If you are training in Forex , then you should know that the widest spreads are found in markets where there are too large gaps between the prices of the best buyers and sellers. Tight spreads are typical for high volume and high cap securities . The profit of the trader depends on the size of the spread. With an overstated amount, it will be hard to make a profit.

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The reason for increasing this parameter may be active purchases or panic selling .

Remember that the spread is not measured in money, but in points! That is Forex school.

Return spread

Now the practice of rebate is widespread – returning part of a spread or commission. It looks like a banal discount for any operation, regardless of whether you came out with a profit or loss. Refunds are made through the services that brokers install.

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2 Comments

  • Reply Miha May 27, 2019 at 2:33 am

    Peace to your home.

  • Reply Minage May 27, 2019 at 2:33 am

    Peace to your home. Thank you for the wonderful articles.

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