What is a Spread in Forex?
The Spread is very important part of the Forex trading, and all traders must have to pay the spread to the broker. I would like to let you know the difference between the sell price and buy price is called spread, in other words, we can say the difference between ask and bid price is called Spread. All brokers have different spread. Some brokers have fixed spread, and some brokers offer variable spread.
Fixed Spread means that the difference between bid and ask is fixed, i.e. if any broker offer fixed spread like on EURUSD bid price is 1.5050 and ask price is 1.5057, here the difference between bid and ask is 2 pips it will remain the same even if market too much volatile, normally fixed spread broker charged very high spread.
Variable spread means that, the difference between bid and ask is not fixed, its variate means sometimes high and sometimes low, during fundamental news normally broker vide their spreads even more than enough like if normally if any broker offer 1 pip spread on EURUSD but during high volatility spread can go up to 5 pips that is why our recommendation if you trade with variable spread broker do not trade during news because your spread will be very high and you will not get the price you wish to open or close your trades
For Instance, the EUR/USD bid/ask currency prices at any traditional bank might be 1.5015/1.6015. This gives a spread of 1000 pips. This spread is extremely pricey in comparison to the bid/ask currency prices for Forex traders, for example, 1.5015/1.5020 – a spread of 5 pips.
Usually, smaller sized spreads are more beneficial for FX traders as the minor change in market prices allows them profit from the trade easily.
How to Calculate Spread in Forex?
Formula: Spread = Ask Price – Bid Price
Below you will find a good example of the spread that is measured for the EURUSD. First of all, we are going to get the bid rate at 1.35640 after that subtract the sell price of 1.35626. Whatever we have been left with after this procedure is an output of 0.00014.
Forex traders must keep in mind that the pip value is the fourth decimal number after POINT (.), getting the finalized spread result as 1.4 pips.
Now we understand how to calculate spread in pips, let’s check out the exact price accrued by forex traders.