What Is Forex Spread? A Spread briefly recognizes the price difference between buying and selling financial assets on the stock exchange. For example, it refers to the difference between purchase and sale prices in investment instruments such as stocks, indices, options and invoice contracts. It is also referred to as Spread PIP (Price Interest Point). What is Pip? In pairs, the smallest pip (Price interest point) that measures price movements from the Square is a diner. 4 after 0 in many pairs. the change in step is measured by observing. Spread also occurs when buying and selling transactions in banks and beat offices. The spread rates here are much higher than in the forex market.
What Is The Spread In The Forex Market?
In particular, the spread, which is one of the terms often used in the Forex market, is very important. Because in the stock market, a lot of attention is paid to the product price. Because of this, it is important to keep the spread rate small. When trading in the Forex market, investment instruments with low spreads may also be preferred. Which firm can you think of with a low Spread rate?Since forex does not have a commission fee, spread is paid as a transaction fee. It should be noted that the spread rate varies from parity to parity, from brokerage to brokerage. The liquidity of the financial instrument is also effective in these changes. The spread rate of products with high liquidity tends to fall, while the spread rate of products with low liquidity tends to rise. Because there is a spread in transactions, when you open a position, you start at a loss as much as the amount of spread. In this case, the sale price must exceed your purchase price to make a profit.
What Are The Spread Types?
When we look at the Spread types, we see that there are 2 types: fixed spread and Dynamic spread.
Fixed Spread; fixed spread is the most preferred type of spread. The reason why it is so Preferred is that it is not affected by market situations and the spread rate is fixed in a certain range. As the name implies, it refers to a fixed ratio.
Dynamic Spread; The Dynamic spread variety is affected by the market and may vary depending on market conditions. As a result of these changes, the spread can both increase and decrease, and the spread rate can vary from product to product. Depending on the liquidity in the market, it can also fall when the liquidity is high, and rise when the liquidity is low. In the Forex market, spread rates are not fixed because of the profits given by the big banks. So it can increase or decrease.
Let’s look at USD/TRY parity. We said that the Spread rate also varies from parity to parity. For example, let’s see how much spread we pay in a 1-lot transaction; what is a Lot? You can also read my article on how to calculate a Lot.
The selling price of USD/TRY is currently 5.70 TL and the buying price is 5,705. In this case, let’s look at the spread rate for 1 unit. 5,705-5,700 =0.0005 i.e. 5 pips. For 1 lot transaction at USD/TRY parity; 1 lot =100000
5,70 × 100000 =(5,70 – 5,705)×100.000=-50 obtained. In other words, we will pay a spread fee of $ 50, to get rid of the spread loss, the selling price of USD/TRY must rise to $ 5,710. (5,710-5,705) X 100000 = 50 TL after-sales profit to switch to 5,710 level must be raised above.
What Should Be Considered When Looking At Spread Rates?
If we want to open a position in the Forex market, our profit should rise above the spread fee after opening a position. We have to be careful with that. Otherwise, there is a possibility of damage. If you are trading in different markets, investment instruments with fixed spreads may be preferred instead of dynamic spreads. For this reason, you should know the trading volume and the investment tool you will trade well.