The spread in forex trading is the difference between the bid and ask price of a currency pair. Here’s a breakdown:
- Bid price: The price at which a forex broker will buy a currency from you.
- Ask price: The price at which a forex broker will sell you a currency.
The spread is essentially the broker’s fee for facilitating the trade. It’s usually measured in pips, which is the smallest unit of price movement for a currency pair.
Here are some key points to remember about forex spreads:
- Variable vs. fixed spreads: Most forex brokers offer variable spreads, which can fluctuate depending on market conditions. Fixed spreads, on the other hand, remain constant.
- Factors affecting spreads: Liquidity of the currency pair, market volatility, and broker type can all influence the spread. Major currency pairs like EUR/USD typically have tighter spreads compared to less frequently traded pairs.
- Spread vs. commission: Some brokers may charge a commission on top of the spread, while others include their fee in the spread itself.
I hope this explanation clarifies the concept of forex spreads!