Spread in Forex is the difference between the bid price and the ask price. The Spread cost
is measured in 'pips' and is the cost of trading. Popular currency pairs such as the EUR/GBP
and USD/AUD have lower spreads as a result of higher levels of liquidity. An in-depth
explanation can be found in our Beginner's Guide To Forex Trading.
Spread in Forex is the difference between the two prices of a currency pair. The Bid is the
quote price at which a trader is willing to buy an asset, and the Ask level is the quote
price at which a trader is willing to sell an asset. Organised by way of a two-way quote,
signify willing buyers and ask prices determine willing sellers. This concept is fundamental
for traders to comprehend as they are the primary cost of trading forex and currency pairs.
For instance, if the bid/ask rate for the EUR/USD is 1.1251/1.1252. Here, EUR is the base
currency and USD is the quote currency. This means that you can buy the EUR at a higher ask
price of 1.1252 and sell it lower at the bid of 1.1251.
The difference between ask and bid price in forex is known as the spread. In the above
example, the spread in pips would be (1.1252-1.1251) = 0.0001. The pip value on USD-based
pairs is identified on the 4th digit, after the decimal. This means that the final forex
spread is 0.1 pips.
To calculate the total spread cost, multiply this pip value by the total number of lots
traded. So, if you are trading a EUR/USD trading lot of 10,000. In case you are trading a
standard lot (100,000 units of the currency). Now, if your account is denominated in another
currency, say GBP, you will need to convert that from US Dollars.
Given the bid and ask prices traders can engage with the market immediately or on the spot.
The ask price is slightly higher than the underlying market price, whereas the bid price is
slightly below the underlying market price. Traders sell the bid and buy the ask. A narrower
bid-ask spread translated to lower trading costs.
The size of the spread plays a pivotal part in forex trading. This is particularly the case
for those using trading strategies that conduct a large number of transactions in a single
trading session. Trading volume, liquidity, market volatility, news, and time can all have
an impact on spreads.
The spread affects profit, given that a currency pair reveals information about market
conditions such as time, volatility and liquidity. For instance, emerging currency pairs
have a greater spread than major currency pairs. Currency pairs involving major currencies
have lower spreads.
Traders should also consider peak trading times for particular currencies. For instance, the
cost of trading the Australian Dollar (AUD) will be higher during nighttime in Australia.
This is because there are not as many market participants actively trading at this time.
Similarly, other Australian financial markets that may influence forex are also closed at
this time. A wider currency pair spread means that a trader would pay more when buying and
receive less when selling.
High spread usually occurs during periods of low liquidity or high market volatility. For
instance, forex pairs that include the Canadian dollar (CAD) will have lower liquidity
during overnight hours in Canada. The same applies to exotic currency pairs such as the
NZD/MXN which have a significantly lower trading volume.
Ein niedriger Spread im Devisenhandel ist die Differenz zwischen dem Geld- und dem
Briefkurs. Händler bevorzugen es, ihre Trades zu platzieren, wenn die Spreads niedrig sind,
wie während der großen Devisensitzungen. Die Spreads sind wahrscheinlich niedrig, wenn die
Volatilität gering und die Liquidität hoch ist. Wenn die Differenz zwischen dem Geldkurs
(Kauf) und dem Briefkurs (Verkauf) größer ist, bedeutet dies, dass die Händler aufgrund der
hohen Volatilität und der geringeren Marktliquidität wahrscheinlich mehr für größere Spreads
ausgeben müssen.
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