When you join the forex trading industry, you will often come across the term "spread". If you too have heard this several times but do not know the meaning of it, then this post has been authored for the very same purpose. Here, we will define what spread means in forex as well as how it can be measured. After understanding the same, the essence of spread in forex will be clearer to you.
What does Spread Mean in Forex?
In forex trading, a difference can exist between the bid price and ask price of a particular currency pair. The difference between the two can be understood as spread in forex, as is explained by the leading forex broker, Tradesto. The bid price refers to the price at which the base currency can be sold by you. The ask price refers to the price at which the base currency is purchased by you. When the buy price is quoted, it is always quoted more than the sell price. The market price which is underlying falls in-between.
When the spread in forex is wider, the difference between the bid price and ask price will be greater. Thus, the volatility will be high and liquidity will be low. A high spread can occur prior to events like a news event, political event, elections, etc. Contrary to this, if the spread in forex is low, then the volatility will be low and liquidity will be high, explains Tradesto Review. When major forex sessions occur, they can result in a low spread.
How is Spread Measured in Forex?
In forex, a pip is used for measuring the spread. Pips can be understood as a movement price. This price may not be very big. Pips can mean the smallest move which is made by a currency in the foreign exchange market.
To Sum up the Above
In this blog, we got to know what spread means in
forex trading and the result of it when it is high or low. We also learnt to
calculate it. We hope this informative blog has improved your understanding of
forex spread.
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