What is spread and why do you know it?

What is spread and why do you know it?

Let's meet again with our article, this time we have returned to the topic. What is spread, why people in the Forex industry need to know, we will get to know each other in this article.

First of all, to get acquainted with spreads, we need to know that there are two types of Forex currency prices: the buy base price (ASK) and the sell base price (Bid). The difference exists between the buy price of the base currency (ASK) and the selling price of the base currency (Bid).

- How to measure spread

Many times the value of the spread is determined by pips as the smallest change in a currency pair then 1 pip is equal to 0.0001.

- The relevance of spreads to transaction costs.

Relevant because they are calculated to determine the actual transaction cost of the trade. It is calculated based on the value per pip and the number of traded lots.

- type of spread

There are two types of spreads:

Fixed spread (Fixed)

It is a spread that does not change according to market conditions. This type of spread is implemented using a Market maker or dealing desk model. The dealing desk is a model that works like a client's counterparty.

strength

- Low trading cost, suitable for those who don't have a lot of money to start trading.

- Able to calculate transaction costs for more forecasting because it is stable

weakness

- Often encountered requotes with new prices when the Forex market is volatile and prices change rapidly.

- encountered a problem with Siippage that will cause the starting price to differ from the price set after entering the trade too much

Fluctuating spreads

This is a spread that is constantly changing and therefore is the type that is offered by non-dealing brokers, giving prices from multiple liquidity providers. As a result, there is no intervention of Dealing desk brokers on the prices given to traders. That means the trader has no control over the spread.

strength

- No requotes will be found. But there may still be some slippage issues.

- The transparency of the price is very high.

weakness

- As the spread of the spread consumes the speculators very quickly, it is not suitable for scalping.

- negatively affects news traders because sometimes profits can quickly turn into losses.

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