Fx trading spread is the difference between the asking price and the bid price in a fx transaction. With a spread value, a trader can tell the value of a pair while trading or even before going into a trade (in the process of carrying out researches). The same applies to a percentage in point, value; a trader or a broker can tell the value of a currency from a percentage in point value. This does not mean that there is any difference between percentage in point value and spread value. There is a difference and they have unique functions, but on a very close range and related circumstances.
WHAT IS A PIP?
A percentage in point is defined as the smallest price movement in a fx transaction with regards to exchange rate and market convention. It is a number value and depicts the value of a currency. The percentage of points, usually, have to do with the fourth decimal place in the value of a spread. For instance, one is equal to 0.0001, two equals 0.0002, and three equals 0.0003 percentage in point, like that and so on.
A percentage in point is never constant. It varies depending on the pair in question and the pricing convention. Major pairs are priced to four decimal places which are equivalent to one basis point (a basis point is a common unit for measuring interest rates and other percentages in the financial market). There are some currencies that do not conform to the standard basis point in percentage in point. One of such pairs is the Japanese yen.
WHAT IS A SPREAD?
The spread is defined as the difference between buy and sell prices. In every transaction, two market prices are given. One market price is given by the buyer and another by the seller. If a trader buys some security from another trader in the market and sells it almost immediately at the same exchange rate at which the security was bought, the trader will lose money for a very simple market conventional fact; the bid price is always less than the asking price.
From an outward percentage in point of view, 0.0003 spread value in US dollar does not sound like much. It all has to do with how much deposit was made for a trade. The larger the trade deposit, the higher the spread and the more significant the result of a trade (either profit or loss). Also, the benefits that come with trading a margin account can make the spread to add up quickly, thereby producing a more significant outcome.