Short Forex Trading Videos: What is Spread? FXTM

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types of spread

The foreign exchange, or Forex, is a decentralized marketplace for the trading of the world’s currencies. Currencies are always quoted in pairs, such as the U.S. dollar versus the Canadian dollar (USD/CAD). The first currency is called the base currency, and the second currency is called the counter or quote currency (base/quote). Spreads can be narrower or wider, depending on the currency involved, the time of day a trade is initiated, and economic conditions.


You can always take it into account when setting up order triggering and in the final result. In the case of a floating spread, it is very difficult to account for it and, as a rule, it isn’t considered, appearing at the end as a surprise. There are rather few Forex brokers offering a fixed spread.

Is Scalping a Method of Managing Spread? 💰

Instead of selling the quote currency to buy the base currency, you’re betting on the future price direction of the pair. For example, if your trading system targets ten pips as profit, the market needs to move at least 13 pips from your entry if the spread for the pair is three pips. If the spread is just a pip, your profit will be locked in once the market has moved 11 pips. The forex spread is one of the ways brokers make money from a forex position. Once you enter an order, the trade starts in the negative because the broker has deducted the spread.

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The bid price is the difference between the price you are willing to sell a currency and the price a broker is willing to pay for it. If you trade around fundamental releases, keep an eye on the quoted spread to be sure your strategy will not be adversely affected by the volatility. XM offers tight spreads to all clients, irrespective of their account types and trade sizes. We recognize the fact that tight spreads only make sense for our clients if they can trade with them. This is the reason why we attribute great importance to our execution quality.

How to Calculate Spread: Bid / Ask Spread Formula

Apart from, there are also some commissions and other fees involved. Commission fees usually vary from $1 to $5 generally for opening up any opposition. Pip is an abbreviation for “percentage in points.” In Forex, one pip is usually equal to one point of market value movement.


You need to find a forex trading strategy that covers the spread charged by your preferred broker and still makes additional profits. 78.17% of retail investor accounts lose money when trading CFDs with this provider. This depends on whether the broker determines the difference between the BID and ASK prices themselves or they are reflected on the basis of real market data.

Price chart of EURUSD in real time mode

Understanding Forex Risk ManagementThe forex market is the most liquid and largest market in the world. However, like any other financial market, the forex market can also be risky during times of high volatility. How to Calculate Forex Position SizingEach trader in the forex market defines their position size before moving forward with a trade. A good spread starts between zero to five pips, benefitting both the broker and the trader. Open an account now to trade with spreads from as low as 0.0 pips.

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The content on this website is subject to change at any time without notice, and is provided for the sole purpose of assisting traders to make independent investment decisions. Any opinions, news, research, analysis, prices, or other information contained on this website is provided as general market commentary, and does not constitute investment advice. First, let’s summarize in a few sentences the basic expenses that you will encounter when trading Forex online. Both spreads, commissions, and swaps are easily traceable to every broker in the market. The overall profit from the trade would be €369 or $460. A difference of three pips has resulted in an additional gain of about €48 or $60.

Again, these are basic characteristics and they may change. As long as volatility’s nature is changeable, the spread will be increasing spasmodically too. That’s why variable spreads aren’t popular with the traders that use automatic trading systems.

This item of the broker’s income is actually the “fuel” of the first one. And if there are many trades, the broker will have its commission. Brokerage companies’ activity area isn’t very large and there are many companies.

It’s simple – they’re currency pairs that include the US dollar – which has been performing quite well as of late. If this is all becoming a little confusing for you, the image above should help you visualize it. Take the ask price of 1.1074, subtract the bid price of 1.1071, and voila! That’s how forex brokerages profit from traders, and it’s a cost that you’ll have to factor in for each trade in order to come out on top. In other words, if the currency pair moves in your favour after opening a position, you will be able to take advantage of the difference between the entry and exit prices.

In the example below, we can see the what is spread in forex of the British Pound versus the US dollar. Slippage is a similar problem—but in the case of slippage, your order is filled at a price that is different from the requested price. This might be OK, but also might be bad for your profits.

Besides, it will be a big problem to enter a trade if the instrument’s volatility is high. For scalpers, this is even more dangerous than slippage, because a scalper can destroy the entire system due to one failed order. Many traders often used automated systems, robots, and scripts, in the Forex market. These systems are based on algorithms, and these algorithms are easy to build when you know the spread in advance.


Rushing in won’t do you any good—study hard, open a demo account, and start off slow with fixed spreads. Slow and steady wins the race when it comes to forex trading. There’s little room for error with this type of trading, so do your best to master each and every topic before you move up the ladder. Having a rock-solid grasp of spreads is key to successful forex trading, no matter which strategy you pick.


However, there’s a commission of 3.00 AUD per transaction and a minimum of 100 AUD. The purpose of spreads in forex trading is to secure profit for the brokerage that is executing the trades, without charging clients a commission or other fees. For traders, spreads are important because they indicate how much money can be made from each successful trade. When you log into your forex broker platform of choice, you will see two different prices for any currency pair—the bid price and the ask price. The bid price determines at what price you can sell the base currency, and the ask price determines for how much you can buy the base currency. Forex prices are displayed in the form of a Bid/Ask spread.

There’s currently an opportunity to trade on the stock exchange with raw spreads. It became possible afterECN trading accounts were created. It is the spread whose size is changing, depending on the Forex market situation. The variable spreads are close to the conditions of the real interbank market.