Spread in Forex Trading
The spread in forex trading refers to the difference between the bid and ask price of a currency pair. In other words, it is the cost that traders have to pay to enter a trade. The size of the spread can vary based on market conditions and the currency pair being traded.
How Does Spread Work?
Let's say you want to trade the EUR/USD currency pair. The current bid price is 1.2000 and the ask price is 1.2005. This means that if you want to buy the EUR/USD pair, you will have to pay 1.2005, which is the ask price. On the other hand, if you want to sell the EUR/USD pair, you will receive 1.2000, which is the bid price.
The difference between the bid and ask price is 0.0005, which is the spread. This means that if you buy the EUR/USD pair, the price has to go up by at least 0.0005 before you can make a profit. Similarly, if you sell the EUR/USD pair, the price has to go down by at least 0.0005 before you can make a profit.
Examples of Spread
Let's take another example to understand spread better. Suppose you want to trade the USD/JPY currency pair. The current bid price is 108.20 and the ask price is 108.25. This means that the spread is 0.05. If you buy the USD/JPY pair, you will have to pay 108.25. On the other hand, if you sell the USD/JPY pair, you will receive 108.20.
Another example is the GBP/USD currency pair. The current bid price is 1.3900 and the ask price is 1.3905. This means that the spread is 0.0005. If you buy the GBP/USD pair, you will have to pay 1.3905. If you sell the GBP/USD pair, you will receive 1.3900.
