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Forex Rates on Spreads and How They Affect Trading

By Edited Apr 11, 2014 0 0

Forex Rates on spreads are extremely important to pay attention to. For those who do not know, a Forex spread is the difference between the bid and the ask price. In other words, it is the inherent difference for the price at which you sell versus the price at which you buy. The price at which you buy is always slightly higher so that the broker can take a profit from the trade as well. This is important to pay attention to because it means that every time you are trading, you are working against gravity and have to make sure you have a trading plan that is ready to fire.

So how do these affect trading more specifically? If you are trading at the highest levels of liquidity on a major currency pair such as the EUR/USD, then that means you are likely to get a very forgiving spread such as 1 or 2 pips. You will only have to make 2 or 3 pips to find yourself in the profit when your spread is so low, making a trade much lower risk and much higher return. It is so incredibly important to observe the spread and find a broker that has excellent spreads on the pairs you are trading.

In the opposite situation, if you are trading a more exotic pair with a 9 pip spread, you now have to make at least 10 pips to be in the profit. So much for scalping and moving out with quick money! You now have to find a trade you are truly sure of in order to get yourself some profits. Beginners in particular should avoid pairs like this as they are very demanding and require a more thorough trading plan. Stick to the majors and you will typically get a much better Forex spread!

Finally, if you notice that your broker doesn't offer very good spreads on any of the pairs you trade, perhaps it is time to switch brokers! Do your research! There are hundreds of amazing Forex brokers out there that offer amazing spreads as low as one pip on majors, so why waste your time and money spending more on your broker than you need to? Do some research, find a fair broker that is willing to offer you a good deal, and stop wasting money on the spread and it will greatly improve your Forex trading.



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