In today’s article, I will tell you what means spread in forex trading.
I will start with an example. We have currency pair EUR/USD and we want to speculate on price going down (USD being stronger, or EUR being weaken)
We have an account with some brokerage company who mediates trades to us. That company of course wants to earn some money from us so they can pay their employees, or software needed for running this business model. And we understand that. So, they give us spread.
So, we want to sell EUR/USD because we want to speculate on it going down. Now, usually with Metatrader 4/5 program, we order sell position.
Let’s imagine that Bid price for EUR/USD price is now 1.2001 and Ask price is 1.2003. What price we will get as sellers of this pair? Of course, 1.2001.
So we sold this position for 1.2001 and now we hold. If we immediately close the position, we will “buy” back the same volume and we will, as buyers, get price 1.2003. And this difference, 0.0002, is called spread. So, we will have of course, loss, if we immediately close the position. No normal person would do that of course, but this is just an example. And that loss is a profit for brokerage company for mediating that order.
If you want to start trading, I recommend you to choose a broker who offers the lowest spreads on the markets and also good terms and conditions.
I can recommend those brokers:
IC markets (lowest spread)
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