What do you mean by forex spread?

Forex trading spread

The spread in forex trading is the distinction between a currency pair's ask (buy) price and the bid (sell) price. The bid price and the ask price are the two prices that are always provided for a currency pair.

While the ask price is the price at which you would pay to purchase the base currency, the bid price is the price at which you can sell the base currency.

The variable, quote, or counter currency is displayed on the right of the currency pair, and the base currency is displayed on the left. You can find out how much of the variable currency is needed to buy one unit of the base currency using the pairing.

The quoted buy price will always be greater than the quoted sell price, with the underlying market price falling somewhere in the middle.

This makes sense in terms of business. The broker offers a service and needs to find a way to profit from it.

• They profit by selling you more for the currency than they paid for it.

• Additionally, they profit by buying your currency from you at a lower price than they will get when they sell it.

• The spread refers to this variation.

How to figure out the forex spread?

You must determine the difference in pips between the buy and sell prices in price to calculate the spread in forex. To achieve this, deduct the ask price from the bid price. For instance, the spread for trading GBP/USD at 1.3089/1.3091 is calculated as 1.3091 - 1.3089, or 0.0002. (2 pips).

Spreads come in two varieties: wide (high) and tight (low). The wider the spread, the more pips were used in the calculation above. Tighter spreads are frequently preferred by traders because they make the trade more affordable.

Spreads are likely to be large in highly volatile but poorly liquid markets, and vice versa. Major currency pairs, like EUR/USD, will, for pair, have a tighter spread than emerging market currency pairs, like USD/ZAR. Spreads, however, are subject to the upcoming factors that will be discussed.

What types of spreads exist in forex?

The forex broker's business model determines the spreads you'll see on a trading platform.

Spreads come in two types:

• Fixed 

• Variable

What do Forex fixed spreads mean?

Whatever the current state of the market, fixed spreads remain constant. In other words, the spread is unaffected by the market's volatility or its relative calmness. It doesn't change. Brokers that follow the market maker or "dealing desk" model provide fixed spreads.

The broker purchases substantial positions from their liquidity provider(s) and offers these positions to traders in smaller sizes through the use of a dealing desk.

This indicates that the broker serves as the counterparty to the trades made by their clients. The forex broker can provide fixed spreads because they can manage the prices they show to their customers by using a dealing desk.

What do Forex variable spreads mean?

Variable spreads are constantly shifting, as their name implies. Variable spreads cause the spread between currency pairs' ask and bid prices to fluctuate constantly.

Brokers who do not work on a dealing desk offer variable spreads. Without the assistance of a dealing desk, non-dealing desk brokers obtain the pricing of currency pairs from various liquidity providers and pass these prices on to the trader.

As a result, they are powerless to influence the spread. Additionally, spreads fluctuate according to the supply and demand for different currencies and the general market volatility.

Spreads typically increase when economic data is released and other times when the market's liquidity is reduced (like during holidays and when the zombie apocalypse begins).

The Best Forex Brokers with Low spread for 2023

Several low-spread forex brokers are listed below, each providing a cheap way to execute FX trades. The following section will examine these inexpensive forex brokers and review their asset selection, features, and fee schedule.

Capital.com –

Overall Best Low Spread Forex Broker

eToro –

Exceptional FX Trading Platform with Groundbreaking "CopyTrader" Function

XTB –

Low spreads starting at 0.1 pip

The Libertex –

Forex Broker with the Lowest Spreads

AvaTrade –

Leading CFD Platform with Support for MT4 and MT5

Interactive Brokers – 

Expert Traders: One of the Best Low Spread Brokers

Assetsfx.org –

Trade on consistently low spreads from 0.0 pips

CMC Markets – 

One of the best Cheap Forex Brokers with a Wide Range of Assets

Forex.com –

Leading Broker in the Industry with STP Account

E*TRADE – 

Best Low Spread Platform for trading Currency Futures

A summary of the forex spread

• An FX pair's buy and sell prices include a forex spread, which is the paramount currency trade price.

• Pips, or changes at the fourth decimal place in a forex pair's quote, are used to measure a spread (or second place if quoted in JPY).

• Subtract the buy price from the selling price to determine the forex spread.

• Spreads on other markets could be fixed, but spreads on the forex market are continuously variable.

• Spreads can be tight or wide (high) (low)

• Tighter spreads are frequently preferred by traders because they make the trade more affordable.

• Wide spreads may happen in highly volatile, poorly liquid markets.

• Tighter spreads may happen if a market has high liquidity but is not highly volatile.

• Spreads may change due to elements such as significant news releases or an occurrence that increases market volatility.