Get to Know Spread Trading
Every trader who transacts in the forex market will be directly faced with the spread. However, there are very few reviews on the use of spreads and their effect on traders as a whole. If a trader sees a forex quote or price, it is usually always followed by the bid and ask values. Spread is the income earned by the broker where when the trader sells, the spread will be charged between 2 points to tens of points 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 in any market conditions. Another spread is a floating spread system that changes depending on market conditions.
Definition of Fixed Spread and Floating Spread
A floating spread is a spread that changes according to market volatility. When trading is active, market liquidity is high and spreads narrow. On the other hand, when trading is inactive and market liquidity is low, the spread widens.
Fixed spread is the difference between the bid and ask prices set by each broker and does not change too significantly. Some brokers apply fixed spreads, because spreads are an indicator of market liquidity.
DISADVANTAGES AND ADVANTAGES OF FIXED SPREAD
Excess :
Difference : In the initial agreement with the customer, the broker has provided the difference between ask and bid. And if there is a change in value, it must be accompanied by strong reasons, such as price developments or fluctuations that are too high.
Stable value: Because it has a stable value, there is no need to worry too much or traders object because it has been known from the start.
Money management: Fixed spreads require stable fees so that money management trading is more consistent.
Lack:
Costs: Commission systems with larger values can occur when compared to those that often change according to central market prices.
Disadvantages and Advantages of FLOATING SPREAD
Profit :
Opportunity for narrowing spreads: Refers to market fluctuations, in active trading with floating spreads, market liquidity is high and spreads will narrow.
Lack :
Brokerage commission allowance: because it was not confirmed from the start, forex players cannot know for sure the broker's commission allowance.
Risk of increase in spread: If a major event occurs, it is possible that the spread will increase from the original price, so that traders are not able to get maximum profit. However, not all brokers or brokers apply a low commission or spread system.
Here are some ways to find a broker with the lowest spreads:
- Choose companies with high ratings and positive reviews.
- Prioritize experienced and professional brokers, who prioritize the success of the players.
- Ensure officiality and legality.
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