What is the spread?
What is the spread? Almost every day we ask ourselves this question, trying to figure out what it is and why the issue is so afraid economy. However, there are different types of spreads, you must therefore be careful to understand what you are talking about.
Other type of spread is then that the Forex, which indicates a given good different and varies according to supply and demand.
What you delve below is precisely this type of spread, what means and why it is important for traders.
We’ll also see how to calculate the spread in Forex, so you have a clear picture of the situation.
What is the spread in the Forex?
We begin by defining clear and simple Especially spread:
The spread is the difference between the Bid price and the Ask price
If you do not know these two terms do not worry, now we will fix immediately. The Bid price is the price at which you can sell the currency pair, while the Ask is that to which you can buy it.
The spread so is nothing more than the difference between two values, that is, between the purchase price (bid) and selling price (ask) of a particular currency.
For example, if the EUR / USD rate 1.3200 / 03, then in this case the spread is the difference between 1.3200 and 1.3203, or 3 pips.
Nothing is therefore exceptionally difficult, but a fairly simple concept to understand.
How to calculate the spread in the Forex?
In forex trading, the spread is already calculated in the transaction costs. The broker fact adds this fee when prompted for the operation. The cost will be charged only once per transaction.
Each broker has its rate of spread and will need to check the tables that provide these to figure out how much you will pay for the transaction. The spread may change significantly between the broker, since it has a difference that oscillates between 2 to 10 pips.
Before you entrust to a broker, so you should consult carefully the tables that are provided by them. Working with a very high spreads could bring few gains, and then you will have to pay attention to the choice.
Not being a fixed cost, the spread in forex, but changing depending on the type of account and the period in which it operates, will be a good idea to consult with attention to the terms and conditions that are offered by a broker.
What serve the spread?
As we said before, the spread is very important for equity investors and can help in determining a number of economic factors, including:
– quantification of financial risk, if they occur in investment,
– the definition of the rating, or the ability / reliability of a company, a company or government issuing a debt security,
– the real ability of a state to fix its public debt, capacity begins to decrease when the spread becomes higher.
Ultimately, the spread can be one of the factors indicative of a financial and economic crisis.