Spread

    0
    219

    This post is also available in: German Russian

    SpreadWhat are trading spreads?

    In online trading, spread is the difference between the ask price and the bid price of a financial instrument. In forex trading, it is usually measured in pips.

    In market theory, the spread is the difference between the currently highest price a bidder is offering and the currently lowest price a seller is asking for. As different bidders and askers might only be willing to buy certain volumes, and because there are small time delays in the market prices, the spread is in practice influenced by a large set of traders.

    This is also the reason why in very liquid markets — markets with many active traders — the spreadWhat are trading spreads? In online trading, spread is th... More is usually much lower than in markets that are not very liquid.

    In forex trading, this has the effect that often, the spread is lowest on EUR/USD (trading euros and US dollars), as it is the most traded currency pair.

    Online brokers usually take a markup on the spread as their source of revenue. The spread is a part of the cost of trading for every trader. That is why the spread on different financial instruments and asset classes is an important factor when choosing a brokerWhat is an online broker? In online trading, a broker is ... More.

    More on spreads

    Let’s consider an example of a spread.

    If the priceWhat are value stocks? A value company is a company that app... More of the EUR/USDEUR/USD is a currency pair consisting of the euro and t... More is listed as bid 1.0000 and ask 1.0001, the seller would be able to sell their position at 1.0000 while a buyer would have to pay the priceWhat is price? The price is the measure of the value of goo... More of 1.0001. This means the currencyWhat is currency? Currencies are the generally accepted me... More spread, in this case, is 0.0001. The usual measure for the spread is pips and so the spread would be 1 pip.

    There are two types of spread: fixed and floating.

    Fixed spread

    A fixed spread refers to a fixed number of pips set as a spread by a broker. The spread does not change, even during the release of news reports and Asian forex trading session activity.

    Variable or floating spread

    A floating spread means that the number of pips you pay as a spread are subject to change by a broker. For instance, if you enter a buy order at a particular time in the day, then the spread may be 2 pips. During heightened periods of volatility, such as when a news report is released or low periods of low volumeWhat is the trading volume? In trading, volume refers t... More such as the Asian session, the spread may increase to 3 or 4 pips.