Forex spread

What is forex spread? The forex spread means the difference between the amount brokers will accept to sell a currency for (ask) and the amount that they will pay for a currency (bid). For example, the EUR/USD spread in the graph below has the bid price is 1.4502 and ask price is 1.4505, so the spread of this currency pair is 1.4505 – 1.4502 = 0.0003 (i.e. 3 pips in another word)

The forex spread is what forex brokers use to make money on every forex trade placed through their network. You can find that ask bid price from online forex brokers is slightly different from the real forex market when you trading with a classic account. The difference is what you pay to the forex broker for their service. However, with an ECN account, you may find the ask bid price is the same as the real market but you need to pay a commission to the broker for each position you take.

The ask bid prices are changing with the time, but the are essentially always different from each other so that the broker is guaranteed to always make a profit. The broker’s aim is to buy low and sell high. Thus, the ask price is always higher than the bid price. There are many factors can impact the spread, such as the market demand for a particular currency, the market supply of a given currency, the competitiveness of the currency and the liquidity of the currency.

Normally, the more active and larger markets (currency pair) offer the lower spread, such as the EUR/USD and GBP/USD. On the other hand, the smaller and exotic markets tend to have a higher spread. When we select a broker, the spread of the product you would like to trade is a very import factor. For the details of how to select the best suitable broker, please read the article - Broker detailed choice factors

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