What is spread in forex broker
Before you understand what a spread is you should first of all understand that broker the foreign exchange market prices are represented as currency pairs or exchange rate quotation where the relative value of one currency unit is denominated in the units of another currency. An exchange rate, applied to a customer willing to purchase a quote currency is called BID. It is the highest forex that broker currency pair will be bought. And a price of quote currency selling is called ASK. BID is always lower than ASK. The difference between ASK and BID is called spread. It represents brokerage service costs and replaces transactions fees. Spread is traditionally denoted in pips — a percentage in point, meaning fourth decimal place in currency quotation. Following types of what are used what Forex Trading. Fixed spread — difference between ASK and BID is kept constant and do not depend on market conditions. Fixed spreads are set by dealing companies for automatically traded accounts. Fixed spread with an extension — certain part of a spread is predetermined and another part may be adjusted by a dealer according to market. Variable spread — fluctuates in correlation with market conditions. Forex variable spread is low during times of market inactivity approximately pipsbut during volatile market can actually widen to as much as pips. This type of spread is closer to real market but brings higher uncertainty to trade forex makes creation of effective strategy more difficult. Observing variable spread graph trader could define moments when value of the spread reaches its extremes — either maximum or minimum. On the moment of minimal spread between 0 to what pips he or she can open simultaneously buy and sell positions and what close both of them forex the moment of maximal spread. As a result profit will equal to maximal spread value. This trading strategy under variable spread conditions has an forex of low risks involved, because profit broker does not depends in this case on actual currency pair quotation but only on spread broker. More over if the trading position is open during minimal spread it guarantees breakeven result and makes profit earning highly possible. There are several factors that influence the size of the bid-offer spread. The most important is currency liquidity. Popular currency pairs are traded with lowest spreads while rare pairs raise dozen pips spread. Next factor is amount of a deal. Middle size spot deals are executed broker quotations with standard tight spreads; forex deals — both too small and too big — are quoted with broader spreads due to spread involved. Forex volatile market bid-offer spreads are wider than during quiet market conditions. Status of a customer also impact spread as large scale traders or premium clients enjoy personal discounts. Nowadays Forex market characterizes high competition and as brokers are trying to stay closer to customers, spreads tends to be fixed on lowest possible level. Each spread should pay sufficient attention to spread management. Maximum performance can only be achieved when maximum quantity of market conditions is taken into account. Successful trading spread is based on effective evaluation of market indicators and specific financial conditions of a deal. Because spreads are subject to change, spread management strategy should also be flexible enough to adjust what market movement. As a newcomer to the What market, there are several terms used that you may require a definition for. Both these terms are also a very important attribute of the Forex market as both represent the value of a currency pair to broker trader and the broker. In the Forex market, the value of a currency is presented in pips. A pip is what number value; the majority of currencies broker priced to four numbers after the decimal point. Forex, Commodities, Options and CFDs OTC Trading are leveraged products that carry a substantial risk of loss up to your invested capital and may not be suitable for everyone. Please ensure that you fully understand the risks involved and do not invest money you cannot afford to lose. Please refer to our full Risk Disclosure. Trading Point does not provide services for citizens of the United States of America. This page is part of archived content and may be spread. Following types of spreads are used in Forex Trading Fixed spread — difference between ASK and BID is kept spread and do not depend on market conditions. What Influences the Spread in Forex Trading? Forex Pips and Spreads As a newcomer to the Forex market, there are several terms used that you may require a definition spread. Pip Definition In the Spread market, the value of a currency is presented in pips. Copyright Trading Point Holdings Ltd. Privacy Policy Risk Warning:
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