Forex Spreads
Understanding spreads and managing margins are two fundamentals that a skilled forex trader
Understanding Spreads
How is spread calculated when trading in the forex market?
In the forex markets investors trade one currency for another. Therefore, currencies are quoted in terms of their price in another currency. Currencies are quoted in pairs (USD/CAD). For example, if it took C$1.20 to buy US$1, the expression USD/CAD would equal 1.2/1 or 1.2. The USD would be the base currency and the CAD would be the quote or counter currency. At forex.com you can trade on dealing spreads as low as 12 pps on the most traded currency pairs.
A spread can mean the difference between the bid and ask prices for a currency. A spread can also mean the difference in price between two related futures contracts. Bid/Ask spreads are measured in pips (smallest increment of price movement.)
Why Are Spreads So Important?
Spreads affect the return on your trading strategy in a big way. Probably more than you think. As a trader, your sole interest is buying low and selling high. Wider spreads means buying higher and having to sell lower. A half-pip lower spread doesn't sound like much, but it can easily make the difference between a profitable trading strategy and an unprofitable one.
