While a lot of forex brokers still advertise zero commission rate currency trading, there's a hidden price to trading and that cost is the currency spread. The spread being the difference within the bid price and the ask price. Of course the wider that spread is, the greater you'll pay for the trade so whenever doing your research for a fx broker, you'll definitely need to pay attention to the spread.
Forex brokers offer two kinds of spread choices. Preset spreads or market spreads. With a set spread, you'll never need to worry about market conditions widening your prices. The spread will remain what the forex broker promised. A market spread can change subject to market conditions. This happens at times of key news bulletins at which times spreads can be at a outrageous +25 pips.
The bid price is the price you'll receive whenever selling a position. The ask price, is the price the market is asking for the pair which in brief is the price you would purchase at. So, if the spread concerning the bid and ask is 2 pips, the second you buy at the ask, you're at a loss of two pips. The currency pair will have to move up by 2 pips for the bid price to be at your entry price.
This spread as pointed out above is the forex brokers income for transacting your trade. By selling to traders at one price, and purchasing from investors at a different price, the fx broker will be able to generate income by performing the trades. A spread of two pips will generate a profit of $20 for the forex broker per standard lot.
Spreads take place naturally within the stock market plus the forex market. The main difference is that the currency market is not really a centralized market like stock markets are. When you go to buy stock, there's a spread within the bid/ask price that is the marketmaker's revenue, or the person that sits on an exchange and completes the orders. In fx trading, the spread would go to the forex broker, who is a market maker in that they match two orders to perform a trade.
Forex brokers offer two kinds of spread choices. Preset spreads or market spreads. With a set spread, you'll never need to worry about market conditions widening your prices. The spread will remain what the forex broker promised. A market spread can change subject to market conditions. This happens at times of key news bulletins at which times spreads can be at a outrageous +25 pips.
The bid price is the price you'll receive whenever selling a position. The ask price, is the price the market is asking for the pair which in brief is the price you would purchase at. So, if the spread concerning the bid and ask is 2 pips, the second you buy at the ask, you're at a loss of two pips. The currency pair will have to move up by 2 pips for the bid price to be at your entry price.
This spread as pointed out above is the forex brokers income for transacting your trade. By selling to traders at one price, and purchasing from investors at a different price, the fx broker will be able to generate income by performing the trades. A spread of two pips will generate a profit of $20 for the forex broker per standard lot.
Spreads take place naturally within the stock market plus the forex market. The main difference is that the currency market is not really a centralized market like stock markets are. When you go to buy stock, there's a spread within the bid/ask price that is the marketmaker's revenue, or the person that sits on an exchange and completes the orders. In fx trading, the spread would go to the forex broker, who is a market maker in that they match two orders to perform a trade.
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