Other things that you have to be familiar with are the composition of forex quotes. They are the bid and ask or offer. What is the bid? And what is the ask? Basically, when a seller is offering a price for a currency, it is called the bid. While for the ask, it is the price that a seller offers to take for the currency. The values between these two are different, and this difference is then called as a spread. Spreads are recognized in pips. Pips themselves are the smallest unit of difference between the bid and ask. For example, GBP/USD is 1.53545/7. It means the bid is 1.53545 and the ask is 1.53547, while the spread is 2 pips.
The spread explained above is where the brokers can make money from. It is need as the broker’s compensation for the risk when the traders open and close position. The traders will expect tighter spread rather than wider spread because wider spread means that the asking price is higher and the buy price is lower. If so, you will find it difficult to gain profit because you have to pay more for buying, and you will get less for selling. However, the full spread is not commonly earned by the brokers, especially when the client’s position is being hedged.
The spread is something that needs to be carefully noticed and learned about, because it gives a great influence on your trading strategy. To be able to gain a lot of profit for a trader, the idea is to buy low and sell high. So, wider spread is considered a disadvantage. Even, a half-pip spread will make a great difference, even though it may seem not much. In other words, the tighter spread is better for a trader. However, it will be useful if it is companied with the right execution by you.
Another tip for you, please carefully choose your broker. There are times when a tight spread appears on the screen, but then your trade is filled a few pips in the wrong direction, or sometimes it is even rejected without any reasons. If you find something like this in your trading, I believe that you should look for another broker.
Bookmark/share this article with others:The spread explained above is where the brokers can make money from. It is need as the broker’s compensation for the risk when the traders open and close position. The traders will expect tighter spread rather than wider spread because wider spread means that the asking price is higher and the buy price is lower. If so, you will find it difficult to gain profit because you have to pay more for buying, and you will get less for selling. However, the full spread is not commonly earned by the brokers, especially when the client’s position is being hedged.
The spread is something that needs to be carefully noticed and learned about, because it gives a great influence on your trading strategy. To be able to gain a lot of profit for a trader, the idea is to buy low and sell high. So, wider spread is considered a disadvantage. Even, a half-pip spread will make a great difference, even though it may seem not much. In other words, the tighter spread is better for a trader. However, it will be useful if it is companied with the right execution by you.
Another tip for you, please carefully choose your broker. There are times when a tight spread appears on the screen, but then your trade is filled a few pips in the wrong direction, or sometimes it is even rejected without any reasons. If you find something like this in your trading, I believe that you should look for another broker.
0 comments:
Post a Comment