Spread (forex spread).
Currency trading is always carried out through specialized intermediaries, brokers or dealing centers, who charge a commission for their services, called a spread.
Spread (Forex spread) is the difference between the price at which you can currently buy or sell a currency. It is usually determined using a simple formula: the purchase price (ask) minus the sale price (bid), resulting in the spread value for a given currency pair at the current moment.
The size of this indicator is the main income of any currency broker; this type of commission is taken simultaneously with the opening of each new transaction on forex, regardless of its direction. For example, if the quote for the EURUSD currency pair And if you open a trade on this asset, these two points will immediately appear in the trading terminal as a loss.
Currency liquidity and Spread size.
These two concepts are usually closely related; the more liquid and in demand the chosen currency is, the less commission the broker will have to pay for opening a transaction.
Moreover, the difference can sometimes be calculated in tens of points, for example, the spread on EURUSD ranges from 0.5 to 3 points depending on the trading conditions of the dealing center, and if you decide to choose such an exotic instrument as USDZAR for trading, you will already have to pay up to 50 points with one transaction.
It is clear that in the latter case the probability of making a profit decreases significantly. Therefore, most traders in their trading use those currency pairs in which one of the components is the euro or US dollar.
Floating or fixed.
The Forex spread can have a constant size or change depending on the liquidity of the market:
Fixed - its size always corresponds to that specified in the specification for trading instruments, this option is mainly used when trading in the Dealing Desk system and is not so attractive for scalping .
It is on average higher than a floating one, but does not require constant monitoring of its size. Floating – changes in a fairly wide range, for example, EURUSD can fluctuate from 0.2 to 5 points, so with proper skill you can open transactions with virtually no additional costs. But some brokers, in order to make a profit from clients trading on accounts with a floating spread, introduce an additional commission on each lot.
Importance in trading.
It all depends on indicators such as trading volumes and the size of your own deposit.
Everything becomes clearer with a specific example.
You trade exclusively with your own capital of $100,000, opening transactions of 1 lot, in this case 1 point of the spread will be equal to approximately 10 US dollars, you will agree that this is not so much in relation to the main deposit.
But if your deposit is only $200, and you, using a leverage of 1:500, also trade with a volume of one lot, paying $10 for each point of the spread, its importance cannot be underestimated.
We should not forget about the number of transactions, the spread on them will be summed up, for example, if during the day you opened one transaction with a volume of 1 lot, and the spread is 2 points, you will have to pay only 20 dollars. In the same case, if there were 10 such transactions, the commission amount will increase to 200.