Spreads

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Spread is the difference between the buying (ask) and selling (bid) prices of different financial assets and tangible assets. On the forex market, it refers to the difference between the purchase price and the selling price of a foreign exchange. The difference between buy-sell prices is measured in pips. (Price Interest Point). Pip is the smallest price change between buying and selling. A pip is defined as the fourth digit after the decimal.

Spread is one of the most important terms that should be known in the forex market.

For example;

Suppose that the selling price for the EURUSD parity is 1,1347 and the buying price is 1,1345. Here is the difference between the buying and selling price , i.e. spread is 2 pips.

Spread may vary depending on market conditions. The investor has to pay a spread on buying or selling every product. For this reason, you should take care to keep the spread amount at the minimum when trading.

There are two different spread types. These are fixed or variable spreads.

Fixed spreads are in the same range regardless of market conditions. It does not change during the periods when liqudity increases or decreases in the market.

Variable spreads are determined according to market conditions. It narrows when liquditiy increases, It expands when liquidity decreases.

  • • Spread must be paid when every position is opened. The profit should be above the spread to be profitable.
  • • Variable spreads are always lower than fixed spreads because of including some form of insurance.
  • • Spread rates depend on whether the market is liquid or volatile.