Spread is the difference between the purchase price and the sale price, this explanation is simplified. It is necessary to understand everything gradually, where the spread is used, what its functionality is. In fact, this is a broker’s commission for the trader’s operations. From this comes his earnings, and suddenly the broker has a low spread, it’s better to think, maybe he still earns on something, for example, on deception.
But in order to become a successful trader, you still need to work on yourself, in particular, to study all aspects of this direction, especially the emerging trends and trends in forex trading.
What can be the spread?
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In the Forex market, there are fixed and floating spreads. Sometimes you can find forex brokers with zero spread, where trading involves a fixed commission.
A fixed spread is usually constant regardless of what is happening within the market. When compared with a floating analogue, it does not depend on a number of market events, cataclysms or accidents. The convenience lies in the fact that it is really correct to calculate SL and TP.
The floating spread changes according to the market situation and has a direct relationship with liquidity. If the broker indicates the value of the spread in the contract, you need to understand that this is its minimum value, the maximum may differ. Suddenly some news comes out, the spread can increase up to 30 times, it is better to take this into account in trading.
Obviously, there is trading without a spread, meaning that there is a fixed price per lot. This means that, regardless of the state of the market, you only need to pay a commission for the volume of trade. This option is the most profitable for traders, but almost none of the brokers provide this service, for them this state of affairs is not justified.
You need to understand that with this trade there is a small spread during the news, even a strong decrease in liquidity. On average, brokers charge a few dollars per lot. There is no need to run for excessively small spreads or their absence, this can be a scam.
What factors affect the spread?
You need to understand that the spreads of different brokers on the same pair vary. This is because this is the income of brokers, that is, they calculate personal profit based on specific conditions:
- the prevalence of currency. On pairs, which are now at the peak of popularity, it is easier for a broker to withdraw money to the market, because the required volume of the minimum transaction is reached, that is, the minimum spread is taken, up to 4 points. When a currency is exotic, no one wants to trade it, so the price goes up;
- the current state of affairs in the market. The spread can change at the time of serious volatility in the market, in particular, important news suddenly comes out, sometimes when a serious drop in liquidity for the currency is expected. In such a situation, the spread definitely increases.
It is important to know that the broker sets its own conditions. He decides which spread will be the most profitable.