Getting to know the spread in forex trading

Every forex trader has often heard the term spread, but perhaps rarely understands in depth the influence of this spread on forex trading. This article will review a little about spreads.

Forex spreads explained

Spread is the difference between the selling price (bid) and the buying value (ask) or sell quotes and buy quotes. This spread is the profit obtained by the broker, where when we sell, the spread will be charged between the difference between the current price and the selling or buying price depending on the pair being traded and the broker's policy. You could say that this spread is a kind of transaction fee that brokers charge to clients who carry out trading transactions on their platform.

Spreads usually vary between currency pairs and trading times. Popular types of highly liquid currency pairs, such as EUR/USD, tend to have smaller spreads, while exotic or less liquid currency pairs can have larger spreads.

Different types of spread

In general, spreads are divided into two types, the first is floating spread or variable spread and the second is fixed spread.

Fixed spread

This is a fixed spread value, there is no change even though market volatility is low or high, fixed spreads are mostly used by dealing desk brokers where they buy and have their own liquidity, so all transactions only occur at the broker's desk and are not passed on to the interbank market. These brokers are often called dealing desk brokers bucket shop brokers or bookie brokers. These brokers are often considered traders because they have their own liquidity, if a trader loses it will be a profit for the broker, and vice versa, if a trader makes a profit it will be a loss for the broker.

Floating/variable spread

Floating spread is also known as variable spread, this type refers to a spread that can change according to market conditions. When volatility increases, spreads can widen, and when volatility decreases, spreads can narrow.

Usually, floating spreads are used by no-dealing desk brokers such as STP and ECN, where the spread value may change according to liquidity in the market. An example of an ECN broker that has been operating for more than 16 years is FXOpen. ECN brokers usually have tight spreads, even zero spreads, and sometimes negative spreads, but still pay attention to commission costs. Usually, ECN brokers have millisecond transaction speeds and without the requotes that often occur at dealing desk brokers.

Why does spread matter?

Spread is a type of transaction cost in forex, so traders prefer to choose brokers who offer low spreads and low commission fees on ECN accounts like FXOpen, but the spread also depends on the pair being traded, for example, the EURUSD pair tends to have a tight spread or even a negative spread on the Ticktrader platform. , but this is different from exotic pairs such as USDMXN where the spread can reach 360 pips.

The spread in forex trading is the difference between the bid price (the price at which you can sell a currency pair) and the ask price (the price at which you can buy a currency pair). The spread is a type of transaction cost that traders incur when they trade forex.

Types of Spreads

There are two main types of spreads:

Fixed spreads: These spreads are fixed and do not change, regardless of market conditions. Fixed spreads are typically offered by dealing desk brokers.

Floating spreads: These spreads are variable and can change depending on market conditions. Floating spreads are typically offered by ECN (Electronic Communication Network) brokers.

Understanding the spread is an important concept in forex trading. The spread is the difference between the bid and ask prices for a currency pair. The bid price is the price at which a trader can sell a currency pair, while the ask price is the price at which a trader can buy a currency pair. The spread is determined by a number of factors, including market conditions and the liquidity of the currency pair. The spread can have a significant impact on a trader's profitability, so it is important to be aware of its size and how it can affect trading decisions.

Understanding the spread can help traders make more informed decisions and minimize their costs.

The spread in forex is a small cost build into the buy (bid) and the sell(ask) price of every currency pair trade. When you look at the price that quoted for a currency pair, you will see that there is difference between the bid/ask.This is what is refered to as the spread or the bid and ask spread; the spread may be 1 to 5 pips between the two prices however, the spread can change by the market condition.

Research.

In forex trading, the spread represents the difference between the buying (ask) and selling (bid) prices of a currency pair. It's essentially the cost incurred by traders to enter a position. A narrow spread is favorable as it minimizes trading costs, while a wider spread can impact profitability. Brokers often profit from the spread, and understanding it is crucial for assessing transaction expenses. Liquid currency pairs typically have tighter spreads, reflecting market efficiency. Traders should be mindful of spread variations, especially during volatile market conditions, as it can impact the overall cost and success of their traders in the dynamic forex environment.

In forex trading, the spread represents the difference between the buying (ask) and selling (bid) prices of a currency pair. It's essentially the cost incurred by traders to enter a position. A narrow spread is favorable as it minimizes trading costs, while a wider spread can impact profitability. Brokers often profit from the spread, and understanding it is crucial for assessing transaction expenses. Liquid currency pairs typically have tighter spreads, reflecting market efficiency. Traders should be mindful of spread variations, especially during volatile market conditions, as it can impact the overall cost and success of their traders in the dynamic forex environment.