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Namaste my readers! We continue a series of articles on the Forex market. Today there are a large number of people who want to make money in the financial market, but without knowing what the spread in the Forex market and other such concepts is, it is difficult to achieve excellent results in trading currency pairs and other financial instruments.
This concept comes from the English word Spred, which translates as the difference between value or prices.
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Currently, the forex market for trade uses a large number of concepts that are inextricably linked. One of them are Swap and Spread. When trading in the foreign exchange market, you need to know about them and be able to use them to obtain the highest level of profit. In order to understand what a spread is, it is necessary to draw a parallel with exchange points. When we visit them, we see the value of the currency when buying and selling it. It is on this difference that banking organizations earn.
Forex for beginners It also shows the difference in prices when buying and selling currency, but it is not as significant as in exchange offices. Here, the difference in the purchase and sale of a currency unit is minimal. So, if you use the concept of Spred in relation to the currency market Fiorex, then we can conclude that this is the difference between the purchase price and the sale price of available currency pairs. The purchase price is called ask, and the sale price is bid.
The concept of a spread is simple and straightforward even to beginners. It is applicable when trading currency pairs. Spred - the difference between the best prices of orders for sale and purchase.
During the opening of the order, the quotes of the selected currencies appear before the traders. If, for example, we take trade in currencies such as the euro and the dollar, then their quotes will be indicated in this form: 1,2669 / 1,2672. In this case, for one spread, the value of one lot will be three points or 3 dollars.
How much is the spread
What is the spread in trading, we figured out. However, now it is worth understanding what its value may be when trading on the Forex market. The cost of one item Spred may vary depending on:
- the rate of the financial instrument chosen for trading
- lot, which the trader plans to open a deal or order
Let us figure out how to calculate the cost of the spread on the example of the euro, dollar currency pair. Today the course is 1,3298 / 1,3300. If you plan to open a deal with the first lot, then the indicator of one lot will be 100 000 USD. It was determined that the spread has a large indicator of the quoted currency, which is the dollar. He is 0,0002. In order to calculate the cost of the spread for this particular case, you need 100000x0.0002. As a result, the cost of Spred will be equal to twenty dollars.
Then you can simply track on the schedule in which direction the price will move. If its indicators are moving at a minimum speed, or the order has just been opened, you can see a spread indicator on your trading terminal, equal to -20 dollars. He is an indicator of how much each trader can pay his broker as a commission for participation in a transaction.
Types of spreads
While trading in the forex market, it is important to have knowledge of many terms, including stop loss and take profit and also the spread. At the moment, there are the following types:
- floating spread
- fixed spread
From the names of these types of spreads we can conclude that the value of one of them does not stand still, but is constantly changing, and the indicator of the other remains the same at any time. Now consider each of them in more detail.
The floating spread in the Forex market is a constantly changing value between the cost of buying and selling a financial instrument. If the trend is currently in flat, then the Spred indicator will be one. Nor does it matter whether the trader uses futures or any other financial instrument. When a very unstable situation appears on the market, the spread value may deviate up to tens of points.
This type of spread depends entirely on the state of the market. If prices for financial instruments are influenced by new financial market news, then the Spred value can grow by many points. Today there are forex brokersoffering floating spreads whose value does not exceed one point.
Floating spread is a fairly common and almost natural occurrence. He, like the margin is typical for relations between banking organizations. With him, novice traders are pretty "Bitcoin"it is difficult to test during the testing of some trading systems. This is due to the fact that until the end of the transaction it will be unclear with what kind of spread indicator the order will be closed.
This type of spread practically does not change depending on:
- trend movements
- market conditions
In essence, a fixed trend cannot exist by its “nature”. The market is not predictable. It seldom or almost never occurs on it, so that it has the same number of sellers and buyers. The relationship between them is constantly changing. This will change the difference when buying and selling financial instruments, in the form of which can be presented binary options.
The most common occurrence is a fixed spread with the extension. It represents a situation where Spred has a constant value until the moment when, due to news or any other factors, it does not begin to change. At certain stages, its value can grow by several points at once.
Fixed spread is often used by companies and organizations, including hedge fund. Thanks to this spread, you can easily create forecasts and easily use the opportunity to get a large income. With it, you can easily calculate how many points you need to reach in order to get income and not stay in the red.
What affects the spread
Spread is not a constant value. It tends to change. However, he cannot do this on his own. The following things can affect it:
- financial instrument liquidity
Typically, traders enter the foreign exchange market as follows: they set the spread with the lowest value to the most popular currency pairs. When working with the so-called "exotic pairs", this indicator may have a higher value. The difference between the spread on the most popular and exotic currency pairs can be very different.
- type of trading account chosen by the trader
During registration on the broker's portal, each trader has the opportunity to choose the type of trading account. And depending on which of the proposed options he prefers, the spread may undergo changes.
- market situation
The market situation tends to change. New macroeconomic news about changes in the realm of certain currencies appears regularly. As a result, the spread value most often increases. Also, an increase in its performance can be observed during low market liquidity.
- scope of operation
If the lot is the smallest or largest in volume, then the size of the spread will be the highest. This is due to the fact that during the transactions the broker bears the costs.
Those who have already chosen forex strategies and is just beginning to trade in the foreign exchange market, it is important to remember that you should pay attention to the size of the spread. After all, it also happens that the commission can be much more than the minimum figure.
What is a spread return?
Today, almost every trader knows that brokers hold some part of the commission during transactions. However, part of these funds is possible to return. In the Forex market for this purpose, serving special Reybate services.
Some may wonder, is there any benefit in that the trader will be paid cash? Practice shows that it is quite profitable. Brokers provide their services only with the help of specialized services, which are engaged in the return of Spred. They receive in their piggy bank another portion of funds after attracting clients for brokerage companies.
While trading in the Forex market, newcomers, and already experienced traders, will have to face a large number of concepts that can be operated on during their trading activities. Spread is one of them. It is important not only to understand what it is, but also to use its individual types in practice. You also need to know how you can return it after the transaction. To do this, you just need to use specialized services and get your money.