The best spread will not make sense if one does not understand what fx spread is. Fx trading involves relying on a broker who provides a platform for one to buy and sell currencies. He purchases the currency from you and then sells it. The price at which a fx broker purchases the currency from you differs from the price at which they sell the currency. Such difference is dubbed as fx spread. Brokers literally make their profits through charging a spread. Spread charging is applied on one part of the transaction and that is the purchase part. Having understood spread begs the question on what is the best spread fx. The Minimal disparity between the bidding price and the asking price in the trade is the best fx spread; in that the spread charges are low thus you are left with extra trading cash. In that case having insight on what makes a good spread fx may seem worthwhile. Here are the tips.
HOW TO MAKE A GOOD SPREAD FOREX
In order to have a good spread, the trader must be in a position to manage and lower the spread. The cost of spreads can be decreased through a number of ways. Some of them include;
- Carrying out a trade when the competition is high; when the demand and supply of a particular currency are high, the brokers decrease their spread in order to have as many clients as possible.
- Trading with popular currencies. Few brokers accept to facilitate a currency trade that entail thinly traded currencies. Due to lack of willing brokers who want to take the risk, the few charge a widespread. However trading with popular currencies, for instance, GBP/ USD pair exposes you to a wide range of willing brokers. Due to the high competition, the spread cost is highly harmonised.
- Operating with middle size spot deals; middle size spot deals are put into effect on quotations with low spreads. However, extreme deals are quoted with wide spreads as a result of the high risk involved.
- Consider the market conditions; trading when the market is quite volatile calls for a wide spread. On the contrary quiet market calls for narrow spreads.
HOW TO CALCULATE FOREX SPREAD
Five numbers are usually used to quote the prices. So, let’s assume you have USD as the base currency and CAD as quote currency with a bid price of 130.00, the asking price is 130.05. In this case, the spread is $0.0005
BENEFITS OF GOD SPREAD FOREX
Good fx spread means that there will be only a small disparity between the bidding price and be asking price. In other words, the best spread lowers your trading cost. In that case, you are left with more capital to carry out a trade. Good spread fx result to a significant disparity when the total gains and losses of spread betting traders are counted.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.