Understanding of Spread

Understanding of Spread

You must have often heard the word ‘Spread’ right? If you are a trader, this spread is included in your consideration of choosing a forex broker. Even when you are trading, the value of this spread is the option to make a Buy or Sell. Spread can be defined as the difference between Bid (demand) and Ask (bid) values. Link with forex trading, spread consists of Bid and Ask value so you can calculate the difference.

At a glance, we mentioned that there is an element of demand and supply. Yes, supply and demand affect the amount of spread. Supply represents the volume or number of investors who want to sell (seller) and Demand represents the volume or number of investors who want to have (buyer). Well the amount of spread could be changed because the volume of investors who do trading also changed.

Spread also has a link with liquidity. Small spreads show high liquidity for a pair. On the other hand, spreads that extend even too wide indicate the pair’s liquidity is low. Usually occurs during holidays or weekends.

Bid represents the highest price for buyers wanting to buy and Ask represents the lowest price for sellers in selling. Transaction will occur when buyer will take ASK price while seller will take BID price. No need to be confused for this.

It will also show that if you see an Ask price that always ticks up there is potential that the buyer is looking to buy so it will push the price up. Meanwhile, if you see the Bid price always tick down then there is potential that sellers are wanting to sell so it will push the price down steadily. This is where the trends start. But if the power of buyers and sellers as large will not push the bid and ask then you can conclude that there is no trend.

Online forex brokers offer two types of spreads: fix (fixed) and floating (floating). For investors, the value of this spread is a cost. If you choose a spread fix then your fee stays at a predetermined spread. Whereas if you choose spread floating then your cost is not fixed depending on the current spread.

Please feel free to choose spread fix or floating. Profit remains the main goal.

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