The Forex Spread is the difference between a Forex Broker’s buy rate and sell rate when trading or exchanging multiple currencies. It’s typically determined by the currency involved, the time of day trade is initiated, and economic conditions.
The forex spread is used by traders to make a profit on their trades. It can also be used by investors to determine how much they can invest in a certain market without taking too much risk or making too little money on their investment.
The most common use case of the forex spread is when traders are trying to determine how much they should pay for an asset to make a profit.
What is a Good Spread in Forex?
Spreads are one of the most important ways to understand the price of a financial market. When you want to trade at a specific price, you can open a position by placing an order with the broker to buy or sell at that price.
The spread is the variation in price between the two. The good Spread normally ranges from one to five pips.
A spread is wide when the bid-ask price differential is greater than 25%. For instance, the 50 pip spread is fairly wide and atypical while we are doing the bid and ask price for EUR/USD.
Why do Forex Spreads Widen?
If a spread is higher than normal, it generally indicates one of two things, either high volatility in the market or low liquidity due to out-trading. The first one has to do with an increase in demand for security as traders try to take advantage of its volatility.
In times of high volatility, such as during market crashes or economic downturns, it becomes easier for traders to make profits by increasing their leverage with borrowed money from banks.
The second one has to do with an increase in the supply of security as traders sell their holdings because they believe that they will not be able to hold their value during trading hours.
For traders to make money on these securities, they need more shares either because they want to leverage or because they can’t afford the price per share.
Why are Spreads So High at 10 pm?
The forex market is a global market that offers 24-hour trading opportunities for currencies. A forex broker is an entity that offers currency exchange services to its customers to help them gain profit from fluctuations in exchange rates.
Market spreads are high at 10 pm because of the lack of liquidity and the fact that market participants are trying to take advantage of traders who are less likely to be in other parts of the world. As a result, prices tend to be higher on the last day of trading in any given week.
The closing time of most of the markets is 10 PM, but it varies depending on the country and region. 10 pm coincides with the end of the New York session. The NY exchange is considered to be one of the most important in terms of liquidity and volume in global markets.
When the market is typically quiet and liquidity providers are busy unloading inventories and closing the business day, this sector is known as “quiet”. The spread between the bid and ask prices can be increased to control the risk of buying and selling in the market.
The broker’s ability to widen the spread is a tool that they can use to influence your trade. It can be used to manipulate the market in their favor and make it harder for you to make money.
Your broker may also be the culprit in manipulating the spread. If you are working with variable spread brokers, there are more chances that they will widen the spread. This is because variable spread brokers don’t have to pay as much commission as fixed spreads brokers.
Final Remarks
The Forex spread is also known as ‘the bid/ask spread’ or ‘the bid/offer spread’. It is the cost of trading.
For example, if the Euro to US dollar is trading with an asking price of 1.14010 and a bid price of 1.14020, then their spread would be 0.0060 which means that one Euro would cost you 2 US dollars in buying power on that exchange.
In addition, the spread can do wonders for your trading performance because it helps you to limit risk and win more often.
