What is ‘spread’ in forex?
The spread refers to the difference between the bid (selling) price and the ask (buying) price of a currency pair. It is essentially the cost of making a trade and represents the broker’s profit.
A narrow spread indicates a liquid market with minimal trading costs, while a wide spread suggests higher costs and potentially lower liquidity. Traders aim to enter and exit positions at favorable spread levels to optimize their trading performance.
Understanding and monitoring spreads is crucial for effectively managing trading expenses and maximizing potential profits in the forex market.
Example of ‘spread‘ in forex
Let’s assume, the EUR/USD currency pair has a bid price of 1.3000 and an ask price of 1.3005, the spread would be 5 pips (0.0005). This means that if you were to buy the EUR/USD, you would do so at the ask price of 1.3005, and if you were to sell, you would do so at the bid price of 1.3000.