Spreads In Forex

What is a spread?

In margin forex trading, there are two prices for each currency pair, a "bid" (or sell) price and an "ask" (or buy) price. The bid price is the rate at which traders can sell to the executing firm, while the ask price is the rate at which traders can buy from the executing firm.
For example, when you see the price quote of EUR/USD is 1.2881/1.2884 as in the above picture, the bid is 1.2881 whereas the ask is 1.2884. That means traders looking to sell must do so at 1.2881, those looking to buy must do so at 1.2884.
The difference between the bid and ask price is the spread, which constitutes the cost of the trade. In fact, all traded instruments - stocks, futures, currencies, bonds, etc. - have spread. If a trader buys at 1.2884 and then sells immediately, there is a 3-point loss incurred. The trader will need to wait for the market to move 3 points in favour of his/her position in order to break even. If the market moves 4 points in your favour, he/she starts to profit.

Many online trading firms like to promote margin forex trading as an almost cost-free instrument - commission free, no service charge, no hidden cost, etc. Traders should know that spread is the cost of trading, and in fact, it also represents the main source of revenue for the market maker, i.e. the forex trading company. The spread may appear to be a minuscule expense, but once you add up the cost of all of the trades, you will find it can eat away quite a portion of your account or your profit. If you check the price tag of a T-shirt before you buy it, do the same thing when you trade forex, look into the spread before you decide to trade. Your trade needs to surmount the spread (the cost) before it profits.

Know your expense: the spread

Spread is the cost to a trader. On the other hand, it is a revenue source of the firm who executes the trade. In the foreign exchange market, the spread can vary a lot depending on the executing firm and the parties involve. Inter-bank foreign exchange can have spread as tight as 1-2 pips, while the bank can widen the spread to 30-40 pips when dealing with individual customers. If you check out the spread of those small exchange shops nearby the tourists' sights, you may find the spread can go up to 400 to 600 pips.

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An individual who is responsible for the entire financial portfolio of another individual or another entity. A money manager receives payment in exchange for choosing and monitoring appropriate investments for the client.

Benefits of being a Money Manager with [ForexGen]:

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Forexgen|What is the United States Dollar (USD)?

United States dollar, denoted by USD or the symbol $, is the official currency used in the United States. Commonly referred to as the "American dollar," the currency is divided into 100 cents (symbol ¢). A further division includes 1,000 mills to a dollar, though this division is largely unknown to the general public and only sometimes used in matters of tax levies.

The dollar is considered the standard unit of currency in commodity markets across the globe (namely gold and oil). At the present time, the U.S. dollar remains the world's foremost reserve currency, primarily held in $100 denominations. The majority of U.S. notes are actually held outside the United States. According to economist Paul Samuelson, the overseas demand for dollars allows the United States to maintain persistent trade deficits without causing the value of the currency to depreciate and the flow of trade to readjust.

In 1995, over $380 billion (380 G$) in U.S. currency was in circulation, two-thirds of it overseas. As of April 2004, nearly $700 billion was in circulation, with an estimated half to two-thirds of it still being held overseas.Key Industries: Leading industrial power in the world, highly diversified and technologically advanced; petroleum, steel, motor vehicles, aerospace, telecommunications, chemicals, electronics, food processing, consumer goods, lumber and mining.

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