What is a spread in forex trading?
In Forex trading, the spread is the difference between the selling price offered by a currency pair and the buying price. Currency pairs always have two prices - buy (offer) and sell price. The purchase (offer) price is the price at which the base currency can be sold. The demand price is the price set for the purchase of the base currency. In a currency pair, the variable or reverse currency is given on the right, and the base currency is given on the left. The pairing tells traders how much of the variable currency is equal to the unit of the base currency.
Bid-ask spread in the Forex Market
The offer price is the price that the dealer agrees to pay in exchange for the currency. The demand price is an indicator of the price at which you want to sell the same currency.
Consider, for example, any American traveller. The purchase price of the euro at the airport was set at EUR 1 = 1.30 USD / 1.40 US dollars. Assuming that, the traveller will receive 2,000 euros, he will have to pay $ 2,800 (USD 1.40) in return.
For example, another traveller in the queue wants to sell the remaining euro after returning from a European vacation. Let's assume that the amount is 2,000 euros. If he can sell the euro for $ 1.30 (low price) at the offer price, he can get $ 2,600 for that euro.
According to the spread of the offer, the kiosk dealer receives $ 200 from this transaction (the difference between $ 2,800 and $ 2,600).
If we compare the standard bid and offer price for the currency, the price paid to buy the currency is higher, and when the currency is sold, it is bought at a lower price.
Which forex pair moves the most? (Top 6)
1. EUR/USD - EUR / USD has a positive correlation with the GBP / USD currency pair and a negative correlation with the USD / CHF currency pair. This is due to the positive correlation between the euro, the British pound and the Swiss franc.
2. USD/JPY: Trading the "Gopher" - The best-selling pair was, as always, USD / JPY. The USD / JPY pair has a positive correlation with the USD / CAD and USD / CHF currency pairs, due to the fact that the US dollar is the main currency in all three pairs.
3. GBP/USD: Trading the "Cable" - The pair is negative, either with EUR / USD. This is due to. GBP / USD correlates positively with USD / CHF. The reason is a positive correlation between the British pound, the Swiss franc and the euro.
4. AUD/USD: Trading the "Aussie" - The AUD / USD currency pair is negatively correlated with the USD / CHF, USD / CAD and USD / JPY pairs because the US dollar is a quoted currency.
5. USD/CAD: Trading the "Loonie" - The USD / CAD currency pair is negatively correlated with the EUR / USD, AUD / USD and GBP / USD pairs because the US dollar is a quoted currency in these other pairs.
6. USD/CNY: Trading the Yuan - The USD / CNY currency pair shows the relationship between the US dollar and the Chinese renminbi (known as the yuan). In recent years, foex trades have averaged 4%.
Top 10 low spread forex brokers:
- FP Markets
- IC Markets
- Fusion Markets
What are the 3 types of spread?
There are 3 main types of spread strategies: vertical, horizontal and diagonal spread strategy.
A vertical spread strategy
This spread strategy is also known as money spread - and also uses two options, which have the same deadline but different holiday prices. A vertical spread strategy gives traders a chance to limit their negative risks, but they also limit their potential.
A horizontal spread strategy
Also known as calendar spreading - uses long and short options in this strategy, which have the same holiday prices, but different end dates. The main purpose of spreading the calendar is to benefit from the effects of the decline of 2 different ending options. A decrease in time (or theta) is an indication of how much the price of an option decreases over time.
The main reason for this is that options approaching the expiration date are more susceptible to time depreciation than other long-term options. As a result, in the horizontal spread strategy, traders can use the long-term option to compensate for the damage, although they can devalue the short-term option and profit from the long-term option.
A diagonal spread strategy
This is an indicator of simultaneous entry into long and short positions, which have two options of the same type, but with different strike prices and duration. Diagonal spread strategies use time degradation as they do in horizontal spread strategies, but they can also take advantage of any movement in the underlying price (known as the delta) at the option price for each point.