Advantages and Disadvantages of Spread Trading
Spread is the difference between the selling price (bid) and the buy price (ask) or sell quotes and buy quotes. Spread is the income earned by the broker when selling, generally the spread will be charged from 2 to tens of profit, depending on the pair used. The size of the spread is different for each pair, even the spread given can be different from one forex broker to another. Spread is the trader's transaction fee per order. Spreads are divided into two, namely floating spreads and fixed spreads. Forex brokers can use fixed spreads, which are spreads that do not change under any market conditions. Another spread is a floating spread system that changes depending on market conditions.
Advantages of Spreads
- Trade without worrying about erratic spread fluctuations.
- In calculating money management and the potential loss and profit is quite easy to calculate.
- Can make trading with EA easier.
Suitable for novice traders who are not ready to face spread spikes when the market is active. Fixed spread fees can also simplify the trader's learning process in determining and implementing money management.
Disadvantages of Spreads
- Not according to market price.
- More prone to requotes.
- Order execution may take longer.
Fixed spreads are still subject to change when faced with market conditions with abnormal volatility patterns (very low or very high). This can happen either before or after a shocking issue or high-impact news release. However, such changes are rare and in general the differences are not very large. The broker will also send a special notification if there is a temporary change in the fixed spread.
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