If we look at forex quotes or prices, it is usually always followed by a bid and ask value. Spread is the difference between the selling price (bid) and the buy value (ask) or sell quotes and buy quotes. This spread is the income earned by the broker where when we sell, the spread will be charged between 2 points until tens of points depending on the pair used.
The amount of spread varies in each pair. For the same pair the spread given can vary between one forex broker and another broker. There are forex brokers who use fixed spread , which is spread that does not change in any market conditions. But there are also those who use the floating spread system, where the spread changes depending on market conditions.
What are fixed and floating spreads??
In the beginning, forex brokers applied Floating Spreads. Floating spreads are spreads that change according to market volatility. However, trading conditions were uncomfortable when volatility skyrocketed. The spread will also jump. That's what started the creation of the facility fixed spread (fixed spread). What is a fixed spread?Fixed Spread means that the difference between the Bid and Ask prices has been set by each broker, and will not experience a significant change. Except, if in subsequent developments, forex brokers feel the need to increase the spread. Although this spread can be said to be fixed or certain, but in the rules of each broker it is usually added a sentence in the form of a "disclaimer" that "there will be an increase in spread when there is a very strong fundamental issue affecting the market", where the pace movement for currency pairs is very fast.
Fixed Spread has its own plus The advantages, a stable Fixed Spread cost makes money management trading can be more consistent. The drawback, Fixed Spread can be bigger than Floating Spread when the market is calm. Floating Spread itself also has advantages and disadvantages. For experienced forex traders, Floating Spreads actually feel more interesting. Rising volatility is a long-awaited moment, because not every time can gain profits in a very short time.
When Floating Spreads are Painful
When there is a change in spread, for traders who have opened positions at the beginning, of course this is not a problem because indeed the effect is not too large, unless it's in the position of los s, then the spread of this spread is very painful.However, for a trader who performs an open position order to coincide with the condition of the spread enlarging, then the impact of the spread will be very pronounced. Because of the many forex traders who open position at the same time, sometime delay in open position , and of course this is very detrimental for a trader if then the price execution occurs at a different level than expected. There is a possibility that the spread that must be borne will swell and the desired profit target is not even obtained because of the delay & nbsp; it. For that, pay attention to the spread on the pair you used before transacting the currency.
Looking for a Broker with Low Spreads
What are low spreads? Low spreads are spreads which value 0. Are there forex brokers that offer low spreads? There is. Some forex brokers provide Zero Spread account services, which are types of accounts where the Spread is zero, so that it can allow traders to save on per-transaction costs.However, you still need to pay attention to applicable regulations, because there are usually several special policies that you might need to pay attention to. For example Zero Spread on ECN accounts. There will usually require that you accept trading conditions that are quite different from the standard accounts in forex brokers. For more details, please read more complete reviews about trading with zero spread .