What is spread in Forex? As a trader, we must know every single thing about the market in which we are trading and putting our investments and every market has a Spread and so Forex has too and every new trader comes with a question in their mind about the spread. So today we will with full detail about the spread and the details and everything that comes in your mind.
What is spread?
Basically spread is simply defined as the price difference between the currencies.
The brokers have quoted two kinds of currencies in Forex the Bid price and the Ask price.
The Bid is the price when you can sell the base currency.
The Ask is when you can buy the base currency.
And the spread is the difference between those two prices.
Here is the review on a picture to define it very well.
you can see the base currency and the counter currency EUR/USD
The BID price is 1.1051 and the ASK price is 1.1053.
And the difference between both price is 2 pips.
when it is said that the broker has no commission or it is commission free you still pay them the commission by the difference between the price and it is the spread.
How to calculated spread in Forex
In Forex the spread is mostly calculated in pips and pip is the smallest unit of the price movement of currencies.
So you can see in an example above a currency pair EUR/USD.
The buy price is 1.35640 (Buy)
And the Sell price is 1.35626 (Sell)
the spread between the price is 0.00014 and it equals 1.4 pips.
usually all currency pairs, 1 pip is equal to 0.0001
Every broker has a different rate in spread some broker has normal spread and some have high spread.
The normal spread is a less difference between the price.
And the high spread is a lot of difference between the price.
So you can clearly see that both currency pairs are same.
Thus the spread is 2 pip and 20 pips that is a big difference.