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What is the spread in the currency market?

Updated on February 7, 2011

Many currency traders ask learners which is spread in the foreign exchange market.Despite the lack of habituation of this word with beginners, is an easy concept.However it is also very important in the business of foreign exchange and gains or losses resulting from the propagation of currency pairs. 


Spread in the forex market is a difference between the cost at which you can buy a currency pair of the market (supply) and the cost, you can sell a currency pair to the market (demand). That is why it is often called spread supply and demand. The bid price is always a little greater than the cost of demand, resulting in a slight loss when opening your position in the foreign exchange market, which is the same size as the spread. This is why it is so important to learn the concept of the spread in the foreign exchange market brokers find the smallest possible spread. 

Sample Spread 

Spread of GBP / USD with 5 digit price: Supply is 1.4102, the demand is 1.4100, 1.4102 Spread is - 1.4100 = 0.0002 or 2 pips. 

Spread of NZD / USD with 5 digit price: Supply is 134.17, the demand is 134.11, Spread is 134.17 - 134.11 = 0.06 or 6 pips. 

Spread GBP / USD with the price of 6 digits is 1.41023 Supply, Demand is 1.41004, Spread is 1.41023 - 1.41004 = 0.0019 or 19 pips fractional pips or 1.9 normal. 

Spread GBP / USD with the price of 6 digits: the Bid is 86,782, the demand is 86,770, Spread is 86,782 to 86,770 = 0.012 or 12 pips fractional pips or 1.2 normal. 

How to use your knowledge of Spread in the forex market? 

Rating when you open a negotiating position in an e-Buy what you make on an offer price and when you sell it at prices of Claim, you should always consider your spreads when you make your business tactics in the foreign exchange market. For example, your system tells you to use 20 levels of pips Stop Loss (DP) and 50 levels of pips in profit taking (TG). There are two ways to do it: 

1. You can add value to your level open TG (subtract for short positions) and subtracting the DP of the same level (adding to short positions). In this way they preserved the values and the ratio of profit / loss but increases the likelihood that your stop loss is reached and reduces the chance of getting your take profit. 

2. Alternately, in addition to the actions listed above, you can subtract the spread of your TG (add propagation for short positions) and add spread to your DP (subtract for short positions). This will protect the likelihood of achieving the levels of the arrest of loss or take profit levels but decrease your income in case of 'take profit' and increase your losses in case of 'Stop Loss'. 

As you see, both strategies have their own drawbacks, so you should care about your particular system to be suitably employed Spread your knowledge in the forex market when using the position size calculator.


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