Forex92
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Novice traders are astonished to see a trade made at a loss quickly after. A broker's fraud is considered. There is no crime here, and the explanation lies in the spread. What is a Forex spread and how does it affect trading results?
What Is It?
Forex Spread: Spread is the difference between ask and bid. That is, at some point, the buy price will be slightly more than the sale price. See image below. Ask is the purchase price. Bid is the selling price.
The official rate is set daily by the Central Bank. But you won't get this pricing at the exchanger. Buying dollars from you will be cheaper than buying them from the Central Bank.
Due to the price disparity, each deal becomes unprofitable as soon as it is opened. Because you bought at Ask and will sell at Bid (lower). In the MT4 terminal, a little loss equal to the spread size is automatically displayed in the “profit” column. Just as the bank's profit comes from exchange activities, so does the broker's profit.
As you can see, the spread on each buy or sell transaction benefits the broker regardless of whether the trader made money or not. Cheating is futile since the broker will get it.
Different Spreads on Forex Brokers offer various spreads. It can be fixed, fixed with an expansion range, floating, or floating with a commission.
Fixed. The spread doesn't alter with the market. It is quite popular with forex brokers, especially for newbie accounts. The spread is always 3 pips. Beginner traders know their commissions before they even begin a trade. Trading strategies can also be tested using historical data. But there is a major drawback - the spread is huge.
Fixed spread with range expansion. The broker can increase the spread to cut off customers who like to wait for macroeconomic data. The same thing happens on Fridays before market closing. This protects against traders who leave orders open over the weekend to try and close the gap.
Floating. This type of spread is common for ECN accounts that trade on the interbank market. The spread between buy and sell prices fluctuates, for example, it can be small while waiting for news and explode when it comes. Long term, trading with a floating spread is more profitable.
Committed commission floating. Same as above, except there is a minimum figure, a fixed commission, below which the spread cannot be.
There are accounts where the spread is zero and the broker makes money from the commission. A tiny spread, it is comparable.
Causes of forex spread
Liquidity – majors have a small spread. Exotic instruments, whose trading volume is much lower, have a higher spread. This is 5 times the spread on EUR USD.
Situation on the market — the broker extends the spread before macroeconomic data is released or regulators speak.
What Is It?
Forex Spread: Spread is the difference between ask and bid. That is, at some point, the buy price will be slightly more than the sale price. See image below. Ask is the purchase price. Bid is the selling price.
The official rate is set daily by the Central Bank. But you won't get this pricing at the exchanger. Buying dollars from you will be cheaper than buying them from the Central Bank.
Due to the price disparity, each deal becomes unprofitable as soon as it is opened. Because you bought at Ask and will sell at Bid (lower). In the MT4 terminal, a little loss equal to the spread size is automatically displayed in the “profit” column. Just as the bank's profit comes from exchange activities, so does the broker's profit.
As you can see, the spread on each buy or sell transaction benefits the broker regardless of whether the trader made money or not. Cheating is futile since the broker will get it.
Different Spreads on Forex Brokers offer various spreads. It can be fixed, fixed with an expansion range, floating, or floating with a commission.
Fixed. The spread doesn't alter with the market. It is quite popular with forex brokers, especially for newbie accounts. The spread is always 3 pips. Beginner traders know their commissions before they even begin a trade. Trading strategies can also be tested using historical data. But there is a major drawback - the spread is huge.
Fixed spread with range expansion. The broker can increase the spread to cut off customers who like to wait for macroeconomic data. The same thing happens on Fridays before market closing. This protects against traders who leave orders open over the weekend to try and close the gap.
Floating. This type of spread is common for ECN accounts that trade on the interbank market. The spread between buy and sell prices fluctuates, for example, it can be small while waiting for news and explode when it comes. Long term, trading with a floating spread is more profitable.
Committed commission floating. Same as above, except there is a minimum figure, a fixed commission, below which the spread cannot be.
There are accounts where the spread is zero and the broker makes money from the commission. A tiny spread, it is comparable.
Causes of forex spread
Liquidity – majors have a small spread. Exotic instruments, whose trading volume is much lower, have a higher spread. This is 5 times the spread on EUR USD.
Situation on the market — the broker extends the spread before macroeconomic data is released or regulators speak.
