When trading Forex or other financial CFDs (contracts for difference) the spread is simply the difference between the bid (sell) and ask (buy) price of the asset.
Varying in size between financial instruments, the spread (often quoted in pips on Forex pairs) is one of the costs involved in trading.
At TradersTrust all spreads across all financial instruments are floating, this means that they may vary depending on the underlying market conditions. During periods when the market is quiet and liquidity levels are high, spreads will usually be lower. During market open/close, at times when the market is volatile or liquidity levels are low, spreads will usually be higher.
As an initial cost relating to trading, an investor opening trade will anticipate that the price of the instrument will move beyond the price of the spread. In such cases, this would give the investor the opportunity to close the trade in profit. If on the other hand, the price did not move beyond the cost of the spread, the trade could only be closed at a loss.
Available from the MT4 trading platform and also from the website, live spreads can be checked under each asset class click here
Let’s have a look at the below example:
The EURUSD currently has a Bid price of 1.18450 and an Ask price of 1.18455, the difference between these two prices is (1.18455 -1.18450) = 0.00005. Because a pip on FX pairs is equal to the smallest change in value to the 4th digit after the decimal this gives us a spread of 0.5 pips or 5 points/pipettes.
The pip itself has a monetary value, in a separate article, we will learn how to calculate this. To automatically calculate the value of the pip you can use the trading calculator