The spread is the difference between the Bid and the Ask price. If we take the prices of the picture, we have the EUR/USD is 1.3075 and 1.3079 ignoring the 5th digit.
So the difference is 1.3079 – 1.3075 = 0.0004 which is 4 pips!
Taking the USD / CAD, the Bid price is 1.0368, the ask price is 1.0374. So 1.0374 – 1.0368 = 0.0006, 6 pips.
The higher the spread, the more profits you need to make, and more money the broker earns from you!
Assuming that you want to sell the currency EUR/USD, you will enter the market at the Bid price – at 1.3075. But if you want to close the trade now, you will close the trade at the Ask price since now you are buying back the currency you sold earlier. But right now the Ask price is 1.3079, a difference of 4 pips against you.
So to make any profit, the Ask price must be less than the Bid price you entered the trade at. Assuming the Ask price moved down to 1.3070, now you will make a profit of 5 pips.
1.3075 – 1.3070 = 0.005, 5 pips profit!
Brokers Spreads
The spread is the profit of the broker. Yes they make a lot of money! So finding a broker with the smallest spread is of fundamental importance, especially for scalping traders, where their profits are normally around 5 to 8 pips.
The spread is the profit of the broker. Yes they make a lot of money! So finding a broker with the smallest spread is of fundamental importance, especially for scalping traders, where their profits are normally around 5 to 8 pips.
When you open a trade, your trade is immediately in the minus since you pay the spread to the broker immediately. You need to get used to this. Eventually the trade needs to recover the spread and go into profit.
EUR/USD spread during the day is around 1.5 pips. So finding a broker with such a spread is very important, and fortunately there are a lot. If it is over than 2 pips during the day, please find another broker. You are paying too much!
Variable Spread
It is common that the spread varies during the day depending on the volume, liquidity and stability of the market. When volume goes down especially after market hours the spread is widened and as it can be seen in the picture, it is 4 pips in the EUR/USD – very bad spread. This is another reason why I don’t trade after the market has closed.
It is common that the spread varies during the day depending on the volume, liquidity and stability of the market. When volume goes down especially after market hours the spread is widened and as it can be seen in the picture, it is 4 pips in the EUR/USD – very bad spread. This is another reason why I don’t trade after the market has closed.
There are also huge discussions and conspiracy theories about how brokers widen the spread on purpose to hit your stop loss but this is another argument our of the scope in this section. But I will definitely write on this hot topic in the future.
News Releases
During news releases, the spread may widen to incredible values and I have seen a spread of over 10 pips! You should be crazy to trade at that time. But people do it, so just be careful.
During news releases, the spread may widen to incredible values and I have seen a spread of over 10 pips! You should be crazy to trade at that time. But people do it, so just be careful.
