Things You Need to Know about Spreads before Trading with the Best Forex Broker

Things You Need to Know about Spreads before Trading with the Best Forex Broker

 

In order to trade in the forex market successfully and make good money, traders need to learn things about currency trading comprehensively. The first thing they need to know is the multiple forex terminologies. Only by having a better understanding of various forex terms, can traders get further advanced in currency trading quickly. Here I am going to share with traders things about forex spreads.

What is forex spreads?

The meaning and the ways to calculate forex spreads is a must traders need to grasp before starting trade with the best forex trading platforms. Generally speaking, the spread is the amount of pips between the bidding price and the asking price. In other words, it is essentially the price difference between the highest price that a buyer is willing to buy a currency pair and the lowest price for which a seller is willing to sell it. The spread is what forex brokers use to make money on every forex trade placed through their network. Let’s make it simple with an example, the forex broker may be paying a price of 1.4200 for buying or selling a certain currency pair. The broker will then allow traders to buy the currency for 1.4201 or sell it for 1.4199. The spread always stays around the actual price that the forex broker is paying. So when traders go long the currency pair, they get one end of the spread and when they sell, they get the other end of it. By the time of trade closure, traders will have always paid the spread to the brokers.

How to calculate spreads when trading with the best forex trading platform?

After knowing the meaning of forex spreads, the next step traders need to figure out is how to calculate spreads when trading with the best forex platform. Before learning calculation of spreads, traders need to remember that in the forex market, traders need to exchange one currency with another one; in other words, currencies are traded in pairs; when you are going long one currency, you are simultaneously going short another. Let’s take the currency pair EUR/USD for example, the first currency, EUR, is called the base currency and the second, USD, is referred to as the quote currency. For example, if it costs USD1.3 to buy one EUR, the expression EUR/USD should be 1.3/1 in currency trading. The USD would be the base currency and the CAD would be the quote currency. After knowing how currencies are quoted in the forex market, it is not difficult for traders to calculate the spread; for example, if the EUR/USD bid price is 130.00 and the ask is 130.05, then the spread would be 0.05 or $0.0005. In order to enjoy better chance to succeed in currency trading, traders need to find the top forex trading brokers and trade with the best forex trading platform that allows traders to trade with unprecedented tight spreads