What is the forex 3

Forex or Stock Market? Which is better?

You want to trade, but there are two different mass-consumer trading markets available. Forex and Stock markets. So, which one do you choose?

What is the Forex market?

The forex or ‘foreign exchange’ market is a marketplace in which currencies can be bought, sold, and exchanged. The participants in this market range from banks, individual retail traders, and even travelers in need of local currency.

The price at which the market participants buy or sell currencies is determined by its exchange rate, which is the value of one currency in terms of another - how much of one currency you need to buy one unit of another currency.

For example, the Euro is worth 1.21 U.S. Dollars, meaning it takes $1.21 to buy one Euro.

On a daily basis, trades are performed millions of times by many different individuals and corporations - on average, the forex market trades upwards of 5 trillion U.S. Dollars per day!

This ‘price’ however is not fixed and always changes.

This is because exchange rates are driven based on supply and demand - the higher the demand, the higher the price, and vice versa.

Exchange rates can change depending on things such as world events, news as well as other (sometimes even unknown) factors, though changes on a daily basis are generally very small.

Most forex traders hold their positions for a few hours or days.

What is the stock market?

What exactly is a ‘stock?’ If you purchase a stock or ‘share’ of a company, you are essentially buying a piece of it.

The more shares in a company you purchase, the greater your percentage of ownership. Most companies also pay out dividends to stockholders on an annual or quarterly basis.

A dividend is a sum of money - the greater your ownership, the more money you would receive. Stock market traders generally hold their positions for several days - all the way up to months.

The stock market is a collection of exchanges that trade various stocks in different companies. Shares can be bought and sold to others via this network of exchanges (similarly to buying and selling currencies).

Unlike the foreign exchange market, which operates 24 hours a day every weekday, the stock market is open for 8 hours, 9:30 a.m. to 4 p.m. Eastern time (on weekdays).

The volume traded per day is $200 billion, considerably less than the $5 trillion traded in the forex market. If you would like a piece of the billions (and trillions) of Dollars traded per day, you may consider learning to trade stocks or forex.

Forex Vs Stocks.

The main reason why anyone would be interested in the stock or forex market is most likely to make money, or to hedge trade. But how exactly does one make money trading in one of the mentioned markets? Will this help determine which market is better?

How can I make money Forex trading?

The answer to this question is very simple for both stock and forex trading: buy low, sell high. However, the difficult and more complex part is actually finding the ‘highs’ and ‘lows.’

There are two main ways to do this: technical and fundamental analysis .

There is no clear-cut answer about which ideology is better, and thus the debate between technical and fundamental analysis is highly dependent on the individual and their personality.

Both technical and fundamental analyses aim to predict future price movements based on the principles of supply and demand.

Technical Analysis.

Technical analysis is the use of past data (such as price or volume) with the objective of predicting future price movements.

In short, technical analysts base their trading style on the saying “history tends to repeat itself.”

By examining past data, traders are sometimes able to identify highs and lows, so that they can buy and sell at the best times to make the most amount of profit.

Technical analysis is applicable to both the stock and forex market (as well as other markets), however, it is primarily used by forex traders. Those who are interested in mathematics, data science, and pattern recognition may also find interest in technical analysis.

Fundamental Analysis.

On the other hand, you also have fundamental analysis. This is generally performed on businesses and takes a holistic approach in determining the value of a security.

For example, an investor (or trader) would examine the financial performance of a company, calculating values such as net profit, equity ratios et cetera.

They would also take into account the company itself and its market - are people interested in this company? How many people will benefit from its actions?

Macro and microeconomic factors are also taken into consideration (as well as many other factors), and used to determine a company’s potential or future value. Those who are interested in business and long-term investors may find that the stock market is more suitable for them.

FX Trade Volume.

Volume in the case of both markets is the amount traded in a given period of time (usually one day).

You may now be thinking back to the five trillion Dollars traded in the forex market compared to the 200 Billion Dollars traded in stocks mentioned previously.

Essentially what this means is that in the forex market, traders will find it much easier to get their orders filled at their desired price level - based on the volume, there are always buyers and sellers.

In terms of stocks, traders may find it harder to get their orders executed at a specific price.

This factor can therefore make stock market trading more difficult compared to the forex market.

Forex Market Open Hours.

Considering that the forex market is open 24 hours a day, five days a week, traders may find this more flexible than trading the stock market as it is only open for 8 hours a day. The forex market may therefore be much more beneficial to traders around the world in different timezones.

FX Variety.

In terms of variety, there are thousands of stocks to trade on the stock market, and only 27 major currency pairs in forex (formed from 8 currencies).

Non-major currency pairs can also be traded, though the total number is still less than 100 pairs.

It is arguably much easier to keep track of eight main currencies compared to thousands of different stocks.

Ultimately, this allows forex traders to ‘get to know’ various pairs to better understand what works for them (and their trading style).

FX Fees and Commission.

Forex brokers make money on the ‘spread’ of a currency pair when you execute a trade. Spread is the difference between the bid and the asking price, and is specific to a currency pair.

Spreads are generally very small and can be easily calculated - making the fees rather transparent. The stock market on the other hand generally charges spreads and a commission fee.

These fees are generally around $5 to $10 for a given trade.

This may be a minor consideration for stock traders who trade with a large amount of capital, however, for new or beginner traders, the fees can really damage profits, potentially making forex much better for traders with smaller accounts.

Should I trade on the stock market or forex market?

It is clear that trading in the forex market has many benefits compared to the stock market, which makes it suitable for a larger group of people due to its flexible hours, lower fees, and higher trading volume.

That isn’t to say however that you should completely avoid stock trading. If you are interested in investing or longer-term trades, the stock market may be better-suited to your personality.

Trading both markets requires some of the same as well as very different skills - neither is, therefore, suitable for complete beginners - although forex may be better for newer traders with smaller capital.

If you would like to trade in either market, you should consider doing research and learning strategies and decide which market is best for you.

If you're a business looking to use FX in your payments, or to hedge future payments, consider using Statrys as your go-to payment business account.

What is the forex 2

What Is Forex Trading?

Foreign exchange trading -- colloquially known as "forex trading" -- has become increasingly popular among retail traders over the past several years. Swapping one currency for another in hopes of capturing interest or exchange rate differences can be a way to make money fast, but it also comes with substantial risks and uncertainties.

Here, we'll give a brief overview of the history of foreign exchange, review why someone might want to trade currencies, explore the forex market as a whole, consider the pros and cons of forex trading, and list and define some of the more common forex trading terms. Finally, we'll offer answers to some of the more commonly asked questions about forex trading.

Understanding forex trading.

Foreign exchange trading exists because people use different currencies to buy goods and services across the world. Depending on where you are, you'll be required to use the local currency, whether or not it's the same as your home currency. You might need to exchange the currency you own for another that can be used in day-to-day transactions.

Currency values fluctuate based on supply and demand. As such, you can swap currencies by taking advantage of short-term differences in supply and demand to profit from the exchange rate. In other words, if the value of the currency you own increases relative to another, you can exchange currencies and enjoy a relative advantage in the new currency.

Someone might be interested in forex trading if they're looking to capitalize on short-term exchange rate fluctuations. Forex traders also can conduct business with relatively low (or no) commissions and operate in a market open 24 hours a day, five days a week. Traders can take both long and short positions, and they can also employ leverage when desired. Although leverage can lead to outsized gains relative to initial investments, it can also lead to magnified losses.

Overall, most forex trading is considered speculative; as a result, it's smart to exercise caution when engaging in any sort of currency exchange for profit.

Image source: Getty Images.

History of forex trading.

After World War II, the world economy was in shambles and entered a sustained period of rebuilding. To stabilize prices internationally, the United States created the Bretton Woods system -- a monetary mechanism that pegged all international currencies to the U.S. dollar and the gold standard (within some margin of error). International currencies could then be easily converted to U.S. dollars without major price destabilization.

The Bretton Woods agreement met its demise in 1971, and currencies again began to float freely against one another. This created additional opportunity for traders to capitalize on exchange rate differences between currency pairs. Increasing usage of computer technology allowed for supply and demand to truly dictate the price of any given security and to efficiently swap currencies at large amounts and/or with the use of leverage.

Soon enough, retail traders gained access to low or no-cost trading platforms that made forex trading possible at the personal level. People are now able to trade currencies from their phones at any time of day with very few restrictions. Although this access has created tremendous opportunity, there still exists the possibility for substantial losses when trading currencies at size.

The forex market.

Understanding how the forex market works is key to getting started as a currency trader. First, currencies are listed by a capitalized three-letter code that is standardized across exchanges. Some of the more common codes include USD (U.S. dollar), CAN (Canadian dollar), EUR (Euro), CHF (Swiss franc), JPY (Japanese yen), and GBP (British pound sterling).

Each denomination can be swapped for another, creating what's known as a "currency pair." The four major currency pairs are EUR/USD, USD/JPY, GBP/USD, and USD/CHF. These pairs are the most heavily traded across the foreign exchange market and are important drivers across the international economy.

The first-listed currency in a currency pair is also known as the "base currency," while the second currency is termed the "quote currency," or the "price currency." The listed price represents how much of the quote currency is needed to purchase one unit of the base currency. As an example, the current EUR/USD quote is 1.06, meaning 1.06 USD is needed to purchase one EUR.

The "spot market" is another way of saying the "current exchange rate market." Currency pair prices listed at spot are those that can be settled immediately and at current exchange rates. The idea is that two traders can move their currency right now ; there's no need to wait a specified period of time during which rates might fluctuate in either direction.

The "forward market" in the forex world allows traders to lock in a particular exchange rate to buy or sell a specific currency at a certain point in the future. Forwards can be standardized to accommodate different trade sizes and are typically used as a hedging tool to protect against large swings in exchange rates over the life of the forward contract.

The "futures market" in currency trading is similar to the forward market, but contracts are standardized and are traded on an exchange. While forward currency contracts settle at a mutually-agreed upon time, futures contracts are marked-to-market on a daily basis. Futures contracts are also commonly used as a hedging tool against fluctuating exchange rates.

Pros and cons of forex trading.

Review the table below to learn about some of the pros and cons of foreign exchange trading:

Table by author. Pros of foreign exchange trading Cons of foreign exchange trading Ability to capitalize on exchange rate differences. Rates may change unexpectedly and significantly. Use of leverage can be used to maximize gains. Poorly managed leverage can lead to devastating losses. Can theoretically make large amounts of money in short periods of time. Risks are often uncertain and underrated. Can express economic forecasts through currency positioning. Difficult to estimate impact of economic data. Arbitrage opportunities may exist with exotic currency pairs. Potential for illiquidity issues in lesser-known currency pairs.

Forex terms to know.

Some of the more common currency terms include:

Currency pair : Two currencies listed in succession, representing the current exchange rate between the two. The first listed currency is known as the base currency, and the second is known as the quote or price currency. A currency pair reflects one currency's value versus another's value. Bid-ask spread : The difference between the current bid and ask prices for a currency (or other listed security). The bid price is the highest price a buyer will pay for a particular currency (and at a given size), while the ask price is the lowest price a seller will accept for the same currency. Pip : The smallest unit of measurement in currency exchange. It is most directly defined as 1/100th of 1%, or one basis point. In numerical terms, it's presented as either .0001 or .01%. Lot : A standard lot represents 100,000 units of currency. A mini-lot represents 10,000 units, while a micro-lot represents 1,000 units. Leverage : Another way of saying "borrowed money" in forex trading. Leverage allows a trader to take larger positions in a particular currency, which allows for magnified gains, or, in the opposite case, magnified losses. In other words, traders can be liable to lose more than their initial investment if they decide to employ leverage. Margin : A good-faith deposit with a broker that allows a trader to take positions in one or more currencies. If the value of the trader's positions falls below a certain level, they will need to replenish their margin deposit. Sniping and hunting : Buying and selling currencies near a specific price point to maximize profit-taking opportunities.

The bottom line on forex trading.

It's definitely possible to make money by trading currencies. It's been done before, and it will continue to happen. However, most foreign currency trading is done successfully by large trading institutions that can access global markets instantly, efficiently, and cost-effectively. Institutions also have access to significant amounts of leverage, which can help to amplify profits when trades go right.

The forex trading game for retail traders is a different animal entirely. Because there's such a focus on short-term profits, you'll need to be heavily dialed into minute-to-minute price changes within currency pair markets to achieve any success. And, even if you do have the determination, a lot of external variables have to fall favorably for you to make money over any meaningful period of time.

The Motley Fool stands behind our view that long-term investing is the best way to generate robust wealth. A focus on short-term, speculative strategies has the potential to make you rich, but it also has the potential to cause catastrophic and irreversible losses. Be sure that you're able to detect the difference before putting up any of your hard-earned money.

Forex trading FAQs.

Where is forex traded?

There is no specific centralized location for foreign exchange trading. Foreign exchange markets are part of an electronic, decentralized network that can be accessed from almost anywhere. Many major global cities are considered forex trading hubs for the purpose of managing trading volume.

Why do people trade currencies?

People trade currencies to take advantage of either exchange rate or interest rate differentials, typically in the short term. If one currency moves favorably against another, the trader may have an opportunity to lock in a profit. Of course, the opposite scenario is also true.

How do I start forex trading?

First, it's critical to gain an understanding of what forex trading is and how people make and lose money trading currencies. Once you feel comfortable, you can research brokers that support currency trading and open an account. You might want to start with a few small, inconsequential trades before staking large amounts of money or engaging leverage.

What is the forex 1

What is the Foreign Exchange Market?

The foreign exchange market, also known as the forex or FX market for short, is the global market for trading in the world’s currencies. Rather than being a market with a central exchange, the foreign exchange market is an informal over-the-counter marketplace. Over-the-counter exchanges are exchanges made between two parties without any form of supervision.

The foreign exchange market is a completely open market. In fact, any activity related to the buying, selling, or exchanging of currencies can be said to be taking place on the foreign exchange market.

The foreign exchange market is by far the biggest marketplace on the planet, with average daily turnovers for some periods in 2022 (which was a very active year) approaching highs of over 6 trillion US dollars.

Who Trades on the Foreign Exchange Market?

The participants who are engaged in the trading of currencies on the foreign exchange market can be thought of as existing on different levels.

With so many participants and so many levels of selling in the foreign exchange market, it is easier to look at it as a series of interconnected marketplaces than as a single entity.

The Interbank Market.

The top-level is known as the interbank market and is a behind-the-scenes market, which only a small number of people can access. At this level of the market, the main participants are the banks, although a small number of insurance companies and other financial organisations also take part. At this level, very large amounts of currency are traded between these participants with a very low spread. The spread is a cost built into an exchange of currencies.

The rate set in the interbank market is known as the interbank rate and this rate underpins the rates of exchange that are offered between participants at other levels of the market.

Other Levels.

At the other levels, there are a number of other participants, such as international businesses, hedge funds, investment management firms, currency brokers, or various other participants who all trade on the foreign exchange market for various reasons.

Generally speaking, the specific levels that participants sit on can be seen as different bands according to the amounts of money which are exchanged. However, there is a huge spread in participants at other levels with levels of interconnectedness as well.

Exchange Rates.

One important outcome of the foreign exchange market is that the values of the world’s currencies are decided by the level of demand for them on the currency market.

This is particularly true for free-floating currencies. These are currencies for which the value is entirely set by the foreign exchange market. However, currencies that peg the value of their currency either to the value of another currency or an alternative reference point (such as the value of gold) also have their values decided to vary degrees by the activities of the currency market.

As the value of a country’s currency shifts, so does its position within the system of global trade.

As a country’s currency strengthens against others, its buying power increases while its export price competitiveness decreases. As a country’s currency weakens against others, its buying power decreases but its competitiveness as an exporter increases.

As such, the value of a currency on the foreign exchange market has a large knock-on effect.

Exchange Rates are Variable and Unpredictable.

While this is true, the value of currencies on the currency market is highly variable and also highly unpredictable. Markets can make large and sudden shifts, for example as happened during the 2008 financial crisis, and it is very hard indeed to predict how currency values will vary in the future.

The high unpredictability in currency value is understandable, however, as no other market is influenced by such a vast array of factors. A huge amount of what happens in the world at any given time is in some way connected to the foreign exchange market.

What Function Does the Foreign Exchange Market Serve?

The primary functions that the foreign exchange market serves are to provide access to foreign currencies and to allow for speculation on the value of currencies.


Forex traders can speculate on the value of currencies in various ways. Speculation refers to the buying and selling of currencies for the purpose of profiting from changes to exchange rates. The popularity of this activity has increased enormously recently as the internet has allowed access to a wider range of people to speculate on currencies.

The largest known currency trade in the world happened in 1992 when George Soros made, probably, over $1 billion dollars by betting that the pound sterling would fall in value. He was right and his speculation earned him a huge amount of money.

Trade, Investment, and Hedging.

Another function of the foreign exchange market is that it provides access to foreign currencies, whether this be to businesses, individuals, governments, or other groups. Having access to foreign currencies is particularly useful in business as it allows international trade to take place.

Having readily available access to foreign currencies allows businesses to import and export goods and materials, and to carry out overseas operations. On top of this, businesses and other groups are able to make investments in foreign countries as well.

FX Hedging.

One area which is less well known outside of international business is the area of foreign exchange (FX) hedging. FX hedging refers to measurements which businesses that trade in foreign currencies take to protect themselves from fluctuations in the exchange rate.

Businesses can be affected to varying degrees and in varying ways by changes to the exchange rate. The risk that is posed to businesses by exchange rate fluctuations is known as currency risk. Those businesses which are most affected by it are those which hold assets that are denominated in foreign currencies and those which carry out transactions in foreign currencies.

Businesses that are exposed to currency risk can protect themselves against it in various ways. Often this involves making an arrangement through the foreign exchange market which either offsets the risk that a company is exposed to or avoids it by fixing an exchange rate for a future date. By fixing an exchange rate, any changes which take place in the time before the currency is exchanged are negated.

What Factors Influence Exchange Rates?

As we said earlier, the exchange rates which come about as a result of activity on the foreign exchange market are often highly variable and highly unpredictable. While various attempts have been made to understand the movement of exchange rates, there is little success to report. Some predictability can be seen in short-term fluctuations. However, longer-term variations are still very hard to predict.

That said, the three major influencers on exchange rates are well known to be political events, economic factors, and the trading behaviour of the foreign exchange market itself.


National, regional and global politics can have a significant effect on the value of a currency. In general terms, instability tends to weaken the value of a currency, whereas stability tends to strengthen it. However, the extent to which weakening or strengthening of a currency happens is hard to predict and political events are often highly unpredictable as well.

The Brexit vote of 2022 is a good example of how politics can influence the value of a currency. After the vote was announced, the pound suffered one of its biggest falls in value for a single day on record. This can largely be attributed to the unexpected nature of the vote and the lack of preparation for it. As ever, uncertainty implies instability and the pound fell in value as a result.

It should also be pointed out that the value of the pound has still not recovered and that there has been a high level of variability in exchange rates for the British pound ever since the Brexit vote was announced.

Economic Factors.

This refers to the economic policy and trade rules under which a currency operates and also the economic conditions of the country(s) in which it exists.

There are a number of things to consider when assessing the economy which underpins a currency. These include government fiscal and monetary policy, government budgets and deficits, trends in economic performance, productivity trends, and the level of inflation.

The Foreign Exchange Market.

Another key factor is the influence that the foreign exchange market has on itself. This is largely down to the psychology of the various participants in it and is a highly reactive factor.

One major trend is that there tends to be rushed away from certain currencies (like the British pound after Brexit) and towards safer currencies when they are seen as unstable. While this is true, the extent to which this happens is highly variable and where this trend exists it can also present an opportunity as the price of a currency drops.

As well as this, the market often overreacts in advance to expected events and then acts in the opposite direction after an event has passed. This influences the timing of market movements and demonstrates how markets can be entirely moved by the expectations of participants rather than by actual events.

As the participants in the foreign exchange market are the key driving force behind the trades which take place on it, it is natural that their predictions and fears will have a huge influence. This is in light of the fact that events in foreign exchange are so unpredictable.

What is the forex

What is forex market?

There are many different types of forex investors and many different forex market types to trade within. Forex market trading is the best way to access the global economy.

What is forex ? Foreign exchange, commonly referred to as forex or FX, in a nutshell is the conversation of one currency into another – such as US dollars to Euros. With an average daily trade volume of $6 trillion dollars, this simple conversion is one of the most widely traded markets in the world.

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What is forex trading? How do forex markets work? What is the forex market structure and size? Who trades in forex markets How to trade forex? Why trade forex? Conclusion.

What is forex trading?

Converting foreign exchange is not just for practical purposes, like when you’re going on holiday to a foreign country and your local currency is not accepted, it can be converted and traded for profit too. The forex trading market is made up of a network of buyers and sellers in the form of individuals, companies, and central banks that transfer currencies at agreed prices.

Forex trading is a highly volatile market owing to the significantly high number of currency that is converted each and every day. Of course it is this very volatility that makes the forex market so attractive to traders looking for great profits.

The forex market differs from other markets like shares or commodities in that it is not traded on an exchange. Forex trading occurs in an Over-the-Counter market which means that trading is engaged directly between two parties.

The Forex market is truly global and there is no central trading location – The entire forex market is run by a network of international banks that operate over four major trading localities and time zones of London, Sydney, Tokyo and New York. Forex trading hours are expansive – without a central location, the Forex market open time is 24 hours, 5 days a week.

How do forex markets work?

The total forex market is made up of three distinct market types:

Spot forex market: This type of market involves “on the spot” trading – that is the exchange of a currency pair that is settled either at the point of trade or very shortly after. Spot Forex trading is the most popular forex market and the largest. The price of the currency pairs, such as to trade USD/JPY , is the immediately quoted price.

Forward forex market: The forward forex market involves a self-regulated contract to buy or sell currency at a specific price with the trade to actually be settled at a set date or range of dates in the future.

Future forward market: The future forward market is quite similar to the forward future market in that it involves a contract to buy or sell currency at a specific price and at a set date in the future. However, unlike the forward future market the future forward market contract is regulated and legally binding.

What is the forex market structure and size?

The basis for all technical analysis of the forex market is in the forex market structure. The forex market structure differs from other markets in that there is no real use of indicators or volume analysis. Instead, forex trading is based on price movement to identify trends.

The Forex market Structure differs greatly from other markets, such as the stock market, as there is no central exchange to determine price. A currency price quote in the forex market will differ between the many dealers. A market this large provides a great deal of competition – meaning it is easier to obtain a fantastic quote!

What is forex market size?

The daily forex market size is utterly massive. To start, there are over 180 official currencies in the world and in 2022, the daily trading volume of the forex market was recorded at $6.6 trillion. Since the forex market is spread across the globe in an OTC format, you can literally trade from anywhere. If you have an internet connection, you can trade forex!

An OTC market is determined by trading conditions, price attractiveness, and the reputation of the trading parties. There are a total of 28 major currency pairs traded in the global FX market and is made up of a combination of 8 major currencies.

USD (US Dollar) GBP (UK – Pound Sterling) EUR (Euro) CAD (Canadian Dollar) CHF (Swiss Franc) JPY (Japanese Yen) AUD (Australian Dollar) NZD (New Zealand Dollar)

Forex is traded as currency pairs – that is the value of one currency against that of another. For example an investor can trade GBP/USD .

The US dollar is listed as the most traded currency in the world with an estimated currency reserve trading volume of 63% in 2022. The euro is considered the second most popular trading currency with an estimated reserve trading volume of 20%. As you can imagine a very popular currency pair is to trade EUR/USD .

Liquidity & volatility.

Liquidity refers to how active a market is and market activity is determined by how many traders are active and how much volume they are actively trading with. The forex market liquidity is very high since it is traded 24/5 with an incredibly high turnover – around $6 trillion a day.

Volatility is a measurement of market price movement or really, it’s a measurement of how drastic the market price movement is. Liquidity can have quite a large impact on the volatility of market prices and high liquidity more commonly results in a less volatile market because price movements are generally smaller.

The incremental price movements in forex market liquidity are because such a large number of traders are trading at the same time but that doesn’t mean the market doesn’t have dramatic movement. Currencies can be dramatically affected by political, social, and environmental change and these changes can cause particular currency prices to become notably volatile.

This is why it is so important to follow the news and politics of the countries associated with the currency pair/s you have chosen to follow.

Who trades in forex markets.

There are many players in the forex market and some major institutions are trading in forex.

Central banks.

Central Banks are vitally important to the forex market as they represent the government of a nation. That means that interest rate policies and open market operations of a central bank have a significant influence on the currency rates of that nation.

It is the responsibility of a central bank to fix the price of its native currency on foreign exchange. Central banks take many actions to either stabilise the currency or attempt to increase the overall competitiveness of that country’s economy.

Investment and commercial banks.

These are the biggest players, alongside central banks, in the forex market as they account for the greatest trading volume. Investment and commercial banks conduct forex transactions for clients and also conduct their own speculative trading. Speculative trades are made to profit on market fluctuations and can provide diversification to a bank’s portfolio.

Hedge funds and investment managers.

The second biggest player in the forex market is that of hedge funds and investment managers. Investment managers represent major financial accounts such as pensions, foundations, or endowments, and trade currencies to increase these funds.

Hedge funds make speculative currency trades as a component of their investment strategies. International investment managers will often buy and sell currencies in order to trade in foreign securities.


Known as retail investors, individuals trade at very low volume when compared to the major financial institutions. Retail investors can trade with a forex calendar through brokerage firms, brokerage apps and trade based on trading fundamentals, such as inflation rates and policy expectations, and technical information, such as indicators and resistance).

How to trade forex?

The easiest way to trade forex as a retail investor is to sign up to a broker such as nextmarkets. Brokerage companies offer training academies that can teach you how to trade currencies , provide assistance when engaging in forex trading, and even provide a forex calendar for major economic events.


Contracts for Differences (CFD) is a form of trading in which a trader takes a position on whether the market value of a particular asset will rise or fall, rather than actually taking ownership of that asset. Think of it like betting on what the market will do!

A fairly new way to take advantage of forex price movements, CFD trading is typically engaged through forex brokers such as nextmarkets, and can be quite advantageous as a leveraged product. Since CFD’s offer large leverage, positions can be opened at a fraction of the trades full value – bigger risk but a significantly greater profit.

Why trade forex?

There are so many advantages to trading in the most traded market in the world. With such a wide range of markets, forex trading exposes traders to markets all over the world. But what are some of the best reasons to trade forex vs stocks ?

Well almost… Since the forex market open time is 24 hours a day, every weekday, you can trade at your own convenience. You can work during the day and trade in the evening or vice-versa.

You can engage in forex trading with leverage, if you so choose. Trading with leverage allows a trader to open a position with a fraction of the required capital. This can result in significant gains but be warned that trading with leverage can also dramatically increase your losses.

Forex market liquidity is so high that it makes it very easy for retail investors to enter and exit a position in mere fractions of a second. This speed means traders can respond to currency fluctuations almost instantly, thereby taking advantage of actionable prices.


There is little doubt why the forex market is the largest in the world – It is accessible to the largest range of investors, be they stay-at-home retail investors trading with leverage, or major financial institutions wielding great capital might. Almost anyone can take advantage of currency fluctuations in the global economy.

The forex market is open almost all the time and with a liquidity that affords traders the ability to respond instantly to price movement. Forex is a vital component of the global economy and with such a monumental global reach, forex trading allows anyone to gain exposure to markets anywhere in the world.

Forex market FAQs.

��What is Forex Market?

There are many unique markets and ways to invest in the global economy. The Forex market is an easily accessible market to individual retail investors looking to take advantage of one of the most popular types of trading in the world.

��How Can I Enter the Forex Market?

The forex market can be easily accessed in several different ways and the method will vary depending on trading knowledge and requirements.

��What is Forex Market Liquidity?

Like many markets, forex has observable liquidity and volatility. Forex market liquidity changes constantly and is affected by several different factors.

There are many unique markets and ways to invest in the global economy. The Forex market is an easily accessible market to individual retail investors looking to take advantage of one of the most popular types of trading in the world.

The forex market can be easily accessed in several different ways and the method will vary depending on trading knowledge and requirements.\u00a0.

Like many markets, forex has observable liquidity and volatility. Forex market liquidity changes constantly and is affected by several different factors.

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What is spread on forex 9

How Forex Spreads Work.

Spread is a term from the financial lingo used to indicate the difference between the bid and ask rates of a currency pair. Before opening a trading account, almost all Forex traders would scout for a broker offering low spread. Even novice traders know that low spreads would make it easy to enter and exit a trade at short notice. Scalpers who aim for 3-5 pips profit per trade are constantly on the lookout for brokers offering extremely narrow spreads. However, there is much more to spread than defining the entry and exit price. Let's study the impact of the spread on FX trading.


Before we study how spread works, it would be better to understand the importance of a pip in the Forex quotes. As you may already know, a pip is the smallest possible price movement in the exchange rate of a currency pair. In a currency pair priced to four decimal places, the smallest change is represented by the last decimal point. It is equivalent to 1/10,000 of a unit. Therefore, for a currency pair with four decimal places, one pip is equal to 0.0001. In case of the pairs quoted in Japanese yen, which are priced to two decimal places, one pip is equal to 0.01.

Most of the retail Forex brokers now offer five decimal pricing. The fifth decimal is called a pipette or a fractional pip, which is 1/10 of a pip. Therefore, an increase or decrease of 10 pipettes will lead to a 1 pip change in the exchange rate of a currency pair. The yen-based pairs will be quoted to three decimal places if fractional pips are used.

Bid and ask.

In the foreign exchange market, banks act as the tier 1 liquidity providers and compete among themselves to offer the best bid and ask price. A quote, which is also referred to as the real price, passes through prime of prime brokers and reaches the Forex broker who serves retail clients. To compensate for the operational expenses and generate profit from the business, a broker deducts a pip or two from the bid price, while adding one or two pips to the ask price. For example, let's assume that a broker receives 1.2420 and 1.2421 as the bid and ask rate for the EUR/USD pair. If the FX broker intends to add a spread of 2 pips to compensate for his expenses, then the final bid and ask price offered to the client will be 1.2419 and 1.2422. A client will be able to sell the euro only at 1.2419. Likewise, the euro can be bought only at 1.2422. Such a setup ensures that the broker is compensated for the service offered. Depending on the nature of risk management used by a given broker, the order may be immediately passed on or grouped together with several other trades and then hedged with the tier 1 prime broker.

An example of the variable bid/ask spread is provided on the tick chart below, taken from MetaTrader 5 platform:

Determining pip value.

The value of each pip is dependent on the traded currency pair, lot size, and the exchange rate. To understand how the value of a pip is calculated, let's assume that a trader opens a €200,000 Buy position (2 standard lots) in the EUR/USD pair at 1.2440. Further, let's imagine that the trader closed the position at 1.2460, with a gain of 20 pips.

Now, the value per pip of this trade is calculated as follows:

To buy EUR/USD at 1.2440, a trader must pay $248,800 (1.2440 × 200,000) for €200,000.

The smallest possible price movement is 0.0001 (one basis point).

The EUR/USD rate at close is 1.2460. Therefore, the pip value in euros will be:

Pip Value = One Pip / Exchange Rate × Position Size.

0.0001 / 1.2460 × 200,000 = €16.05.

In dollar terms, the value of one pip is equal to 16.05 × 1.2460 = $20.

The overall profit from the trade = €16.05 × 20 pips = €321 or $400.

Now, let's assume that the trader has gained 23 pips instead of 20 pips in the example discussed above.

The overall profit from the trade would be €369 or $460. A difference of three pips has resulted in an additional gain of about €48 or $60. We can now apply the calculation to understand the impact of the Forex spread on the net returns.

In the example above, if the Forex broker offers quotes with a spread of 2 pips, then the amount lost (in form of spread) by the trader is $20 × 2 = $40, i.e., 10% of the profit made by the trader ($40 / $400 × 100%).

Alternatively, let's assume that the trader closed the position at 1.2410.

The EUR/USD rate at close is 1.2410. Therefore, the pip value in euro is:

0.0001 / 1.2410 × 200,000 = €16.12.

In dollar terms, the value of one pip is still the same $20.

The overall loss from the trade = €16.12 × 30 pips = €483 or $600.

If the Forex broker offers quotes with a spread of 2 pips, then the amount lost by the trader in form of spread is $20 × 2 = $40. So, the spread has contributed to 6.66% of the net loss ($40 / $600 × 100%). As you can see, the actual spread expenses are based on the size of profit or loss on a trader’s position.

Impact of spread on trading.

Large volume traders may gain or lose thousands of dollars by a difference of one pip. That is one of the reasons for informed traders to look at the spread offered by a Forex broker before signing up for a trading account.

The spread indicates the cost a trader will be paying for executing buy or sell transactions. Most of the brokers provide a detailed list of spreads they offer during normal conditions. The spread will be a little higher for mini and micro accounts when compared with normal or pro accounts. Generally, mini and micro account holders tend to trade a lesser number of lots compared to other account type holders. Thus, to compensate for the loss in revenue, brokers tend to use a wider spread for smaller accounts.

The spread may be widened considerably during periods of high volatility. This protects brokers from losses due to off-quote execution. Forex brokers, who are market makers, have to hedge their risk as they act as a counter party to the trades made by their clients. Therefore, they widen the spreads during the announcement of a high impact news, minimizing their risks.

However, companies with bad reputation tend to misuse the option and widen their spreads so much that the clients will be at a great disadvantage while buying or selling a currency pair. Imagine going short in a currency pair with a 50 pip spread. The mark-to-market loss will begin at about $500 for every lot sold, with such a wide spread.

It is extremely important to consider spreads while choosing a Forex broker. A difference of one or two pips may be the difference between a successful and failed Forex trader.

If you want to get news of the most recent updates to our guides or anything else related to Forex trading, you can subscribe to our monthly newsletter.

What is spread on forex 8

Forex Currency Pairs With Lowest Spreads.

If you are like most beginner forex traders, you are probably asking yourself a lot of questions. One common question that puzzles many beginners is: should I trade with a larger or low spread? The thing is that low spreads is a very attractive feature in forex trading . This is because, with low spreads, there is a low risk and reward ratio.

Many professional traders like to trade forex pairs with lowest spread because they believe it is much easier to make money when the spread is low. These traders choose forex pairs with low spreads because they want to make money quickly without putting too much capital at risk.

In other words, forex spreads are extremely important to traders because they determine how much money you will lose or make on each trade . Spreads can be wide , which means that they are large, or they can be narrow , which means that they are small and more profitable . The wider the spread, the higher your risk of losing money because you need to pay more than you would otherwise.

With a narrow spread, it’s easier to make money because you only need to pay a small amount of money to execute your order . That is why Audacity Capital recommends beginners to start trading pairs with low spreads because it gives traders a better chance at making profits on their trades. If you are a new trader, keep reading this article to know the best forex pairs with the lowest spreads.

What is a Spread in Forex Trading?

What is spread on a pair? A spread is the difference between the bid and ask price for a particular currency pair . Simply put, the difference you get when you buy or sell that currency pair at a certain price.

As mentioned earlier, forex spreads are very important because they determine how much profit or loss you will make on your trade. Traders who choose wider spreads could get more profits, but it comes with plenty of risks. That is why traders are always advised to choose a reasonable spread, depending on their capital, to avoid losing a lot of money .

Normally, there are two types of spreads in forex trading:

1) Opening (or Bid) Spread – The minimum acceptable o pening bid amount of a currency pair at which traders can buy that currency pair without any obligation to buy it at all.

2) Closing (or Ask) Spread – The maximum acceptable closing bid amount of a currency pair at which traders can sell that currency pair without any obligation to sell it at all.

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Top Forex Pairs with the Lowest Spreads.

EUR/USD Pair: Spread Begins from 0.1pips.

EUR/USD is one of the most traded pairs in the forex market, and it is also best for beginners as it has a very low spread . This means that traders can start with a small capital and still make reasonable profits with this pair. The EUR/USD has a 20% trading volume in the market, and its variable spreads are around 0.1 to 3 pips, while its fixed spreads range from 1.3 to 5 pips .

The good thing with choosing EUR/USD pair is that it is very volatile . Even with the low spread, you can make a significant profit within a short time. The USD currency is normally triggered by news events, political events, social media, and the economic calendar . The same also applies to the EUR currency. Having a mix of these currencies makes trading fun as long as you know how to open and close positions accurately.

GBP/USD Pair: Trade with a Low Spread Pair that Shifts.

If you are looking for forex pairs with lowest spreads tradersway broker offers, you should consider trading with GBP/USD pair. With the pair, you can get about 2.0% profit daily if you use the correct strategies.

What makes this pair unique is its big movements in the market . This means that even with the low spreads, it could give you significant profits if you combine it with a liquid market and good trading strategy. The GBP/USD has a variable spread of about 0.3 to 2.7 pips , including commissions. Also, the amount of losses you may make on a daily basis with this pair may be lower than that of other forex pairs because of its low spread.

USD/JPY Pair: Trade with Another Lowest Spread Forex Pair.

After the EUR/USD pair, USD/JPY is the second forex pair with lowest spreads . The good thing about trading with this pair is that the two currencies have a strong economy . One deals with exporting (Japan), while the other is a big importer of different products. This means that this pair is very volatile, and you could find some great opportunities as you boost your trading skill. The average variable spread for this currency pair is 0.2 to 2 pips. With this pair, you can yield better profits if you specifically focus on the two economies . If you get a broker offering three digits or an average of 1 pip, you could potentially make at least 2.1% daily profit .

EUR/JPY Pair: A Low Spread Non-USD Pair.

This non-USD pair also has a low spread and can be suitable for trading if you are familiar with the economies. However, note that this pair is very sensitive due to its big movements . Anytime you use this pair, expect some major movements in the market . The advantage of trading with this pair is that your losses will be minimized because of its low spread. EUR/JPY has a daily range of 1.9% in terms of profit . This means that its spread ranges from 0.5 to 5.7 pips.

USD/CHF Pair: High Stability Pair with Low Spread.

USD/CHF is a pair that is well know for its stability but do not assume that there are no opportunities available when trading with this pair. This pair can offer a daily profit of about 2.6% as its spread ranges from 0.5 to 5 pips. The best part of using the USD/CHF pair is that it is an easy-to-follow currency pair because it is more stable than other forex pairs.

Are There Any Forex Brokers that Offer Low Spread Currency Pairs?

com eToro Libertex AvaTrade, etc.

Which Forex Pair Should I Start With?

While spread matters a lot in forex trading, the best way to find the right pair is to look at the charts and see which ones have the most potential . It is wise to begin with pairs with understandable historical data to make your work easier while using the pair. So, is spread of a pair good or bad ?

According to many professionals, choosing the right spread in a forex pair matters a lot as it will determine your profits and losses . Therefore, spread is a good thing as it helps minimize risks .

What is spread on forex 7

What is Forex Trading?

Forex trading (also called foreign exchange or FX) isn’t about buying or selling currencies themselves. Instead, it’s about correctly predicting a change in the relationship between two currencies – whether the exchange rate will rise or fall.

How do you trade forex?

When trading forex, you are speculating that one currency will rise or fall against another. You are effectively buying one currency while simultaneously selling another. When you close that position you’re doing the reverse — selling the currency you bought and buying the currency you sold. And if the currency you initially bought has increased in value against the currency you initially sold, you’ll make a profit.

When you ‘buy’ GBP/USD you are hoping that sterling will strengthen against the US dollar. So if the pound was worth $1.50 when you bought and rises to $1.52 when you sell, you’ll make a profit. Conversely, if it falls to $1.48, you will make a loss. Find out about the benefits of forex trading.

Forex pairs.

The two currencies whose price you speculate on when you trade forex are known as forex pairs or currency pairs.

The most commonly traded pairs are EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD and NZD/USD. Known as ‘the majors’, they account for around 85% of all currencies traded.

When you trade on a currency pair you’re speculating that the exchange rate between the two currencies in the pair will change. For example, if you go long on EURUSD, you’ll make a profit if the euro increases in value against the US dollar. But if the Euro decreases in value against the US dollar, you’ll make a loss.

Understanding forex markets.

There are several factors that can influence the exchange rate between any two currencies.

Understanding what they are and their likely impact will help you decide how and what to trade. These factors include the political climate in the countries involved and their interest rates. Many traders look for changes in interest rates as a signal that forex trading opportunities will arise.

Other factors include the amount of public debt, the approach to monetary policy taken by central banks and even natural disasters, such as earthquakes and flooding. Our News and Education pages help you stay up to date with financial news and economic data.

How to trade forex?

With spread co there are two ways to trade forex – spread betting and contracts for difference.

Spread betting — low trading costs with Spread Co, including our tight, fixed spreads and no overnight financing charges on short index and equity positions. Not to mention that your profits are tax-free*. Read more about spread betting.

CFD trading — we offer low margins, from just 0.5% for EURUSD, and there’s no stamp duty* to pay. You can also choose between single or consolidated position accounts. Read more about CFD trading.

Forex spread bet profits will always be in your account currency. When you trade forex using CFDs any profit will be in the counter currency.

Whichever you choose, you’ll be able to carry out your trades on our easy to use trading platforms for mobile, iPad and web.


The difference between the buying (ask) and selling price (bid) in a currency pair is called the spread and this is effectively the cost of your forex transaction. The size of the spread will vary between currency pairs and can be as low as 0.8 for EURUSD when spread betting.

Fixed or variable spreads.

Some companies will offer variable spreads. This means that the size of the spread can change through the trading day. For example they might advertise spreads as low as 0.75, but these can increase to as much as five points at certain times of the day. If you’re forced to close a trade at a point when the spread is at its widest, this could have a serious impact on your potential gain.

At Spread Co all of our spreads are fixed. And when you trade forex, they never change, no matter when you open or close a position. This means you can trade confidently, knowing that the spread when you close a position will be the same as it was when you opened the position.

Forex pricing.

We price all our currencies to five decimal places, except for japanese yen.

The first currency in the pair is known as the base (or primary) currency. The second currency is known as the counter or quote currency. When you go long you’ll be buying the base currency while selling the counter currency. When you go short you’ll be buying the counter currency while selling the base currency.

Forex trading with spread co.

Spread Co offers more than 38 currency ‘pairs’ you can trade with. We offer some of the lowest FX spreads in the industry – from just 0.8 points for EUR/USD. See market information for more details.

Why trade forex?

24-hour trading – the FX market is available 24 hours a day, five days a week, you can trade whenever you want Trade on margin — your initial outlay is just a fraction of the asset value Liquidity — forex is an actively traded market so it’s easy to get in and out at short notice Low transaction costs – no broker fees or stamp duty* to pay, just tight spreads fixed 24/5 Market size – no single participant can control market prices Risk control options – that let you limit your exposure to market volatility.

These forex trading examples show you how we calculate your margin for forex spread betting and CFD trades. They also show how we calculate potential gains or losses.

Spread betting example.

In this example, you believe sterling will weaken against the US dollar and take a short position on GBPUSD (our product which mirrors the Spot GBP/USD market).

Our price for GBPUSD is 1.55713 (Bid) and 1.55723 (Offer). Our spread on this trade is 1 point.

You decided to go short at £5 per point. You place a limit order of 1.54983 and a stop loss of 1.56083.

£1 per point on GBPUSD is equivalent to £15,572.30 Notional Value.

For your £5 per point bet, your margin is calculated as:


0.5% x (5 x £15,572.30) = £389.31.

The exchange rate falls to 1.54983 (your limit order value) The exchange rate rises to 1.56083 (your stop loss value) Original bid price minus your limit order multiplied by trade size Original bid price minus your stop loss multiplied by trade size (155713 – 154983) x £5 (155713 – 156083) x £5 Profit £365.00 Loss £185.

When spread betting with Spread Co your profit is always in the same currency as the one you used to place your bet. So, if your bet is in GBP, your profit is in that currency, even if you were to bet on EUR/USD.

What is spread on forex 5

What is spread in Forex Trading?

Spread is one of the most commonly used terms in the world of Forex Trading. The definition of the concept is quite simple. We have two prices in a currency pair. One of them is Bid price and the other is Ask price. Spread is the difference between the Bid (selling price) and the Ask (buying price).

With the business point of view, brokers have to make money against their services.

The brokers make money by selling a currency to the traders for more than what they pay to buy it. The brokers also make money by buying a currency from the traders for less than what they pay to sell it. This difference is called spread.

What does spread mean?

The spread is measured in terms of pips which is a small unit of price movement of a currency pair. It is equal to 0.0001 (fourth decimal point on quote price). This is true for most of the major pairs while Japanese Yen pairs have second decimal point as the pip (0.01).

When the spread is wide, it means the difference between “Bid” and “Ask” is high. Hence, the volatility will be high and liquidity will be low. On the other hand, lower spread means low volatility and high liquidity. Thus, the spread cost will be small when the trader trades a currency pair with tight spread.

Mostly currency pairs have no commission in trading. So spread is the only cost that traders have to bear. Most of the forex brokers do not charge commission; hence, they earn by increasing the spread. The size of spread depends on many factors like market volatility, broker type, currency pair, etc.

What does the spread depend on?

The spread indicator is usually presented in the form of curve on a graph that shows the direction the spread between the “Ask” and “Bid” prices. This can help the traders to visualize the spread of a currency pair over the time. The most liquid pairs have tight spreads while exotic pairs have wide spreads.

In the simple words, the spread depends on market liquidity of a given financial instrument i.e., the higher the turnover of a particular currency pair, the smaller the spread. For example, EUR/USD pair is the most traded pair; therefore, the spread in the EUR/USD pair is the lowest among all other pairs. Then there are other major pairs like USD/JPY, GBP/USD, AUD/USD, NZD/USD, USD/CAD, etc. In the case of exotic pairs, the spread is multiple times larger as compared to the major pairs and that’s all because of thin liquidity in exotic pairs.

Any short-term disruption to liquidity is reflected in the spread. This refers to situations like macroeconomic data releases, the hours when major exchanges in the world are closed, or during major bank holidays. The liquidity of instrument allows to determine whether the spread will be relatively large or small.

- Economic news.

Market volatility may affect the spreads in forex. For example, the currency pairs may experience wild price movements at release of major economic news. Thus, the spreads are also affected at that time.

If you want to avoid a situation when spreads go too wide, then you should keep an eye on the forex news calendar. It will help you to stay informed and tackle the spreads. Like, non-farm payrolls data of the U.S. brings a high volatility in the market. Therefore, the traders can stay neutral at that time to mitigate the risk. However, unexpected news or data are hard to manage.

- Trading volume.

Currencies with high trading volume have usually low spreads such as the USD pairs. These pairs have high liquidity but still these pairs have risk of widening spreads amid economic news.

- Trading sessions.

Spreads are likely to remain low during the major market sessions like Sydney, New York and London sessions, particularly when the London and New York sessions overlap or when the London session ends. Spreads are also affected by general demand and supply of currencies. High demand of a currency will result in narrow spreads.

- Importance of broker's model.

Spread is also dependent on business model of a broker.

Market makers mostly provide fixed spreads. In the STP model, it can be a variable or fixed spread. In ECN model, we only have market spread.

All of these broker models have their own pros and cons.

What types of spreads are in Forex?

The spread can be fixed or variable. Like, indices have fixed spreads mostly. The spread for Forex pairs are variable. So, when the bid and ask prices change, the spread also changes.

1. Fixed spread.

The spreads are set by the brokers and they do not change regardless of market conditions. The risk of a liquidity disruption is on broker’s side. However, the brokers keep high spread in this type.

Market maker or dealing desk brokers offer fixed spreads. Such brokers buy large positions from liquidity providers and then offer those positions in small portions to the retail traders. The brokers actually act as a counterparty to the trades of their clients. With the help of a dealing desk, the forex brokers are able to fix their spreads as they are able to control the prices that are displayed to their clients.

As the price comes from a single source, thus, the traders may frequently face problem of requotes. There are certain times when the prices of currency pairs change rapidly amid high volatility. Since the spreads remain unchanged, the broker will not be able to widen the spreads in order to adjust to the current market conditions. Therefore, if you try to buy or sell at specific price, the broker will not allow to place the order rather the broker will ask you to accept the requoted price.

The message of requote will be displayed on your trading screen to inform you that the price has moved and if you agree to accept the new price or not. It is mostly a price that is worse than your ordered price.

When prices move too fast, you may face the issue of slippage. The broker may not be able to maintain the fixed spreads and your entry price may be different than your intended price.

2. Variable Spread.

In this type, spread comes from the market and the broker charges for its services on top of it. In this case, the broker has no risk because of liquidity disruption. The traders usually enjoy tight spreads except for volatile market movements.

Non-dealing desk brokers offer variable spreads. Such brokers get their price quotes of currency pairs from many liquidity providers and theses brokers pass the prices directly to the traders without any intervention of a dealing desk. It means that they have no control over the spreads and spreads will increase or decrease depending on overall volatility of the market and supply and demand of currencies.

Comparison of fixed and variable spreads.

Some of the advantages and disadvantages of fixed and variable spreads are discussed as below:

Some of the benefits and drawbacks of these two types of spreads are outlined below:

Fixed Spread.

Variable Spread.

May have requotes.

Risk of requotes does not exist.

Transaction cost is predictable.

Transaction cost is not always predictable.

Capital requirement is small.

Capital requirement is relatively bigger.

Appropriate for beginners.

Appropriate for advanced traders.

Volatile market does not affect the spread.

Spread may get widened at times of high volatility.

How are spreads measured in Forex trading?

The spread is calculated within the price quote by last large number of ask and bid price. The last large numbers are 9 and 4 in the image below:

You have to pay the spread upfront whether you trade through CFD or spread betting account. This is the same as traders pay commission while trading shares CFDs. The traders are charged for both entry and exit of a trade. Tighter spreads are highly favorable for traders.

For example: The bid price for the GBP/JPY pair is 138.792 while the ask price is 138.847. If you subtract 138.847 from 138.792, you get 0.055.

As last large number of price quote is the base of spread; hence, the spread is equal to 5.5 pips.

What is relationship of margin with spread?

You may have a risk of receiving margin call if the forex spreads dramatically widen and the worst case is, positions being automatically liquidated. However, a margin call occurs only when the account value drops below the 100% margin requirement. If the account reaches below the 50% requirement, all of your positions will be automatically liquidated.


Forex spread is the difference between the ask price and the bid price of a Forex pair. Usually, it is measured in pips. It is important for traders to know what factors influence the variation in spreads. Major currencies have high trading volume; hence their spreads are low while exotic pairs have wide spread amid low liquidity.

Click on the button below to Download our "What is spread in Forex Trading" article in PDF.

What is spread on forex 4

Fixed Spreads.

They never change no matter what the market conditions.

Fixed spreads help traders know their bottom line i.e. their spread cost, regardless of market conditions. No matter what the market’s liquidity or volatility is, easyMarkets spreads remain stable. Even during Bitcoin’s historic bull run, when it reached $20,000 – easyMarkets not only continued offering the cryptocurrency but kept its spreads unchanged.

What our Traders say about us.

What are Fixed Spreads?

A spread is the difference between the ask and bid price. In simple terms think of it as a retailer that purchases a product at a wholesale price and then sells it for a little bit more. Some brokers adjust this spread between the ask and bid price depending on volatility, meaning if markets are volatile your spread might be different for every trade you place within that period.

A complicated formula is usually necessary to calculate these variable spreads.

Fixed spreads on the other hand allow you to know your spread cost beforehand and develop your strategy (either long-term or daily) simply. This allows for better price transparency and ultimately a more predictable cost assessment before you even start trading.

What Effects Spreads?

Although Fixed spreads do not change, they do differ from instrument to instrument. Variable spreads can reveal the liquidity of a market.

This is due to certain factors such as:

The supply and demand for a specific security.

The underlying asset’s overall trading activity.

Variable vs. fixed spreads.

In forex trading, spreads are of two types: variable or fixed.

A variable or floating spread is a constantly changing value between the ask and bid prices 2 . In other words, the spread you pay for purchasing a currency pair fluctuates because of things like supply, demand and total trading activity.

Brokers promising tight spreads typically offer variable spreads. Although it’s certainly possible that the actual spread you pay for matches the one advertised by the broker, this is not always the case. In general, spreads are usually tighter during active trading sessions where liquidity is optimal. A prime example of this is the London-New York overlap 3 .

After all, variable spreads are characterized as a “completely market phenomenon.” 4.

1. Investopedia. Definition of ‘Spread.’ 2. Forex CFD Trading: Fixed Spreads or Variable Spreads. Contracts-for-difference.com 3. Capital Spreads. Fixed or variable FX spreads 4. Investopedia. Forex Scalping. 5. Fixed Spread in Forex Trading – Four Solid Reasons to Choose It. Traderji.com.

The 5 Advantages of Fixed Spreads.

Unlike variable spreads, fixed spreads are set by the broker and don’t change regardless of market conditions or volatility. The spread you are offered is the spread you pay.

Although variable spreads marketed at 0.1 pip look more appealing, fixed spreads can potentially save you more money throughout the course of your career. Below are five advantages of fixed spreads in forex.

1. More transparency.

In forex, fixed spreads mean transparent costs. You know exactly what you’re going to pay for each time you trade, regardless of interbank liquidity, time of day or trading volumes. This ensures that brokers can’t manipulate the spreads in their favour.

2. Lower costs.

By applying fixed spreads, you can greatly reduce the cost of trading. Fixed spreads offer no surprises, ensuring you can budget the costs of transactions well in advance. This will greatly improve your ability to manage costs over the course of your trading career.

3. Easier news trading.

Volatility in the forex market has become commonplace and isn’t limited to news events. While variable spreads may be beneficial during quieter market times, fixed spreads are ideal for volatile market conditions 5 , which just also happen to potentially provide more opportunities to take advantage of.

4. Safeguard against volatility.

Unfortunately, variable spread accounts can make news trading very confusing because of how wide the bid and ask fluctuate. By using a fixed spread, traders may approach news trading as they would any other market condition.

5. More effective short term strategies.

Short term forex trading strategies involve making numerious trades in a short period of time – is much easier and more predictable using fixed spreads. Due to the nature of this strategy the potential gains can be small, so using fixed spreads ensures a higher level of price transparency.

1. Investopedia. Definition of ‘Spread.’ 2. IFC Markets. Floating and Fixed Spreads. 3. Forex CFD Trading: Fixed Spreads or Variable Spreads. Contracts-for-difference.com 4. IFC Markets. Floating and Fixed Spreads. 5. Capital Spreads. Fixed or variable FX spreads 6. Investopedia. Forex Scalping. 7. Fixed Spread in Forex Trading – Four Solid Reasons to Choose It. Traderji.com.

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What is spread on forex 3

Calculating Foreign Exchange Spread.

The foreign exchange spread (or bid-ask spread) refers to the difference in the bid and ask prices for a given currency pair. The bid price refers to the maximum amount that a foreign exchange trader is willing to pay to buy a certain currency, and the ask price is the minimum price that a currency dealer is willing to accept for the currency.

How can We Calculate the Foreign Exchange Spread?

The foreign exchange spread is usually expressed as a percentage, and can be calculated using the formula below:

Ask Price – Refers to the lowest price that a currency dealer is willing to sell units of the currency for.

Bid Price – Refers to the highest price that a currency trader is willing to buy units of the currency for.

Thus, traders and dealers are able to exploit different parties’ valuation of the given currency and profit from the discrepancy. In some cases, the argument can be made that certain forex trades follow the Greater Fool Theory, which exploits environments where there is asymmetrical information.

The “midpoint” of the foreign exchange spread refers to the theoretical price at which there would be a trade. It can be calculated by adding the ask and bid prices and then dividing the sum by two.

For example, if a dealer is willing to sell a certain number of units of a given currency for the equivalent of US$1.50, whereas a trader is only willing to buy a number of the currency units for US$1.00, the midpoint price of the foreign exchange spread would be (1.50+1.00)/2 = US$1.25.

Factors that Influence the Foreign Exchange Spread.

There are a great number of factors that can affect the magnitude of bid-ask spreads that prevail on certain trading floors. For example:

1. Trading volumes.

Generally speaking, higher trading volumes are indicative of a more liquid market, which implies a lower bid-ask spread. As the foreign exchange spread decreases, so does the discrepancy between dealer and buyer valuations of the currency. Therefore, dealers are able to more easily find a buyer with a similar bid price to their ask price and proceed with a trade.

Likewise, a buyer is able to find a dealer more easily who is willing to accept their offer to buy the currency for a certain price.

Higher foreign exchange spreads typically signify lower trading volumes since buyers and dealers have greater difficulty finding a willing trade partner.

2. Economic/Political risks.

Nations that experience tumultuous political climates or unstable economies typically have their currencies associated with high risk. Such economies usually have fairly high inflation rates and do not have a disciplined approach to monetary policy. As a result of this, the foreign exchange spread will become larger. This is because dealers will perceive the currency as a high-risk investment, and thus will only sell the currency at a premium. Buyers seek to buy at a discount to compensate for the higher risk.

Thus, the bid-ask spread will widen and, as noted, trade volumes will decrease.

3. Currency volatility.

If a currency is not supported by a disciplined monetary policy and a stable central bank, it is usually more susceptible to changes in value. As a result, dealers will push ask prices higher, which will, in turn, drive the bid-ask spread upward.

More Resources.

Thank you for reading CFI’s guide on Calculating Foreign Exchange Spread. To learn more about related topics, check out the following CFI resources:

Fixed vs. Pegged Exchange Rates Forex Trading – How to Trade the Forex Market The Winning Mindset of a Trader Trade Order Timing.

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What is spread on forex 2

What Does Spread Mean in Forex?

Spread has an enormous impact on the profitability of forex trades. Learn everything you need to know, below.

Tim Fries.

Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University .

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Shane Neagle.

Shane Neagle.

Meet Shane. Shane first starting working with The Tokenist in September of 2022 — and has happily stuck around ever since. Originally from Maine, .

Updated June 14, 2022.

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Is guacamole superior to peanut butter and jelly?

Just kidding—those aren’t the sort of spreads that we’ll be dealing with today (though I would certainly opt for the guacamole). ��

Spreads are an essential part of forex trading—and at first glance, they might seem a bit daunting. They change rapidly, involve math, and worst of all, multiple decimal places. They look indecipherable—but if you put in a little effort, they’re actually quite easy to understand.

Forex trading isn’t simple. Although we’re witnessing an explosive rise in the number of new traders, the fact remains that over 70% of retail traders, meaning individuals, end up losing money in the foreign exchange market.

But these losses can be avoided, provided that you put in the work to educate yourself. And we’re here to help—this guide will cover all the basics, as well as a few more advanced points to help you along on your forex journey.

We’re going to explain what spreads are, how they work, what causes them to fluctuate, as well as what type of spread is best suited toward your needs—and we’ll do it all in simple, easy-to-understand human language.

Once that key stepping stone is in place, you can continue with your forex education, open a demo account—and hopefully, eventually succeed where most fail. ��

What you’ll learn.

What's a Spread? Difference Between High and Low Spreads Test Your Knowledge: Quiz Different Types of Spreads in Forex Fixed Spreads Explained Variable Spreads 101 Calculating Spread Cost How Are Forex Spreads Quoted? What’s Behind Forex Spreads? Scalping and Managing Spread.

What’s a ‘Spread’ in Forex Trading? ��

A majority of forex trading is done without commissions. This is great, no question about it, but it does pose another question—how do brokers make money if that is the case?

The answer is through spreads. A spread is a built-in transaction cost that brokers use to make profits off of trades. A broker will sell you a currency at a higher price point than they buy it for and they will also buy it from you for a cheaper price than they sell it for.

There’s no reason to be alarmed here—spreads are usually small, and most forex brokerages have shifted to this business model. If a brokerage offers zero commissions and 0.0 spread, beware—it is most likely a scam forex broker. So, now that we’ve described spreads in simple terms, let’s go a little more in-depth.

When you log into your forex broker platform of choice, you will see two different prices for any currency pair—the bid price and the ask price. The bid price determines at what price you can sell the base currency, and the ask price determines for how much you can buy the base currency.

As we’ve discussed, the ask price is always higher than the bid price. The difference between the two is the spread and that difference is measured in pips—the smallest amount by which a price can change. And seeing as how most currency pairs are quoted to the fourth decimal place, a pip is (usually) equal to 0.0001.

If this is all becoming a little confusing for you, the image above should help you visualize it. Take the ask price of 1.1074, subtract the bid price of 1.1071, and voila! There’s your spread of 3 pips. That’s how forex brokerages profit from traders, and it’s a cost that you’ll have to factor in for each trade in order to come out on top.

Now that we’ve got the basics down, let’s move on to a few more complex topics. Namely, high and low spreads, the different types of spreads, and how to calculate spread cost.

Spread Overview and Summary.

Spreads are the difference between the bid price and the ask price of a currency pair. Spreads are the most common way that brokerages make a profit. A spread is measured in pips—a unit of measurement that is equal to 0.0001 for most currency pairs. For currency pairs involving the Japanese Yen, a pip is 0.01 Spreads change throughout the day, sometimes quite rapidly—you’ll have to keep an eye out for low spreads to make good trades. Spreads can either be fixed or variable, depending on what brokerage you’re using.

Difference Between High and Low Spreads ��

Before we move on, let’s deal with the topic of high and low spreads. You might be thinking to yourself: “Well, if spreads are just a fact of life in FX trading, something like a commission, then there’s not much I can do about that—so I shouldn’t pay any mind to that stuff”.

And you’d be wrong—the difference between a high spread and a low spread can have a huge effect on your trades and whether or not they’re profitable. Keep in mind that you’ll have to cover the cost of the spread.

What this means in practice is that in situations with a high spread, it is much tougher for a trade to become profitable—and it takes a lot longer, which is far from ideal.

Testing Your Knowledge: Quiz Time ��

We’ve gone over how spreads are calculated but taking a few moments of your time out to apply that knowledge will be beneficial in the long run. Here’s a short quiz that will help cement this knowledge firmly so that we can move on.

1. Currency pair: GBP/USD.

Bid price: 1.3581.

Ask price: 1.3584.

What’s the spread?

Answer: Spread = 3 pips.

2. Currency pair: NZD/USD.

Bid price: 0.7135.

Ask price: 0.7142.

What’s the spread?

Answer: Spread = 7 pips.

3. Currency pair: EUR/USD.

Bid price: 1.20775.

Ask price: 1.20791.

What’s the spread?

Answer: Spread = 1.6 pips.

4. Currency pair: EUR/CAD.

Bid price: 1.53834.

Ask price: 1.53851.

What’s the spread?

Answer: Spread = 1.7 pips.

Different Types of Spreads in Forex.

Not all spreads are created equal. In fact, the way that spreads are determined varies from one broker to another. There are two types of spread in forex— fixed and variable .

The difference between the buy and sell price of a currency pair in a variable spread fluctuates in range, whereas the fixed spread remains constant regardless of the circumstances.

Before you go ahead and open an account with a forex broker, you’ll want to find out what the differences between fixed and variable spreads are, and which of those options is more appealing to you. In this next part, we’ll go over the key differences, as well as the advantages and disadvantages of both options.

How Do Fixed Spreads Work? ��️.

Put simply, fixed spreads stay the same regardless of what is going on in the market. This system is utilized by market-maker and dealing desk forex brokers. This means that the difference in the bid price and the ask price is constant, taking a lot of the guesswork out of the equation.

Pros and Cons of Fixed Spreads ����

Fixed spreads are consistent, and therefore much more predictable. Some of the main advantages of fixed spreads are:

Predictable trading costs Smaller capital requirements They are better suited for novice traders.

They’re much more appealing to beginner traders and offer predictable trading costs, as well as smaller capital requirements. But they also come with a couple of drawbacks, including:

Requotes Slippage Higher overall spread.

Requotes occur when prices change so fast that the broker can’t adjust the spread in time to adapt to newfound market conditions. When this happens, your trade will be blocked, and you will be given a new, requoted price which you can then accept or decline. This is nearly always a price that is significantly worse than the initial one.

Slippage is a similar problem—but in the case of slippage, your order is filled at a price that is different from the requested price. This might be OK, but also might be bad for your profits.

What About Variable Spreads? ⚙️.

Variable spreads are utilized by non-dealing desk brokers. They have no control over the spreads that they offer—instead, they get the prices from a number of liquidity providers and then simply pass them on.

Variable spreads are constantly changing—you might think that this is risky, and it definitely can be. But spreads can also become narrower—much narrower, in fact, than what a fixed spread broker could ever offer.

Pros and Cons of Variable Spreads ⚖️.

In contrast to fixed spreads, variable spreads aren’t all that consistent and predictable. However, they do offer a couple of key advantages when compared to fixed spreads that include:

Better and more transparent pricing Generally tighter spreads No requotes Faster trade execution.

So, what about the cons? Well, some of the more significant ones are:

Larger capital requirements Less suitable for novice traders Spreads can rapidly increase due to volatility Not suited to scalpers and news traders Slippage can still occur.

Is it Better to Trade Forex with Fixed or Variable Spreads?

There’s no one-size-fits-all answer here but there are a couple of things that generally hold true. If you’re trading infrequently or with a small account, fixed spreads are the way to go. On top of that, if you’re planning on scalping or news trading, then fixed spreads are the better choice.

Fixed spreads are generally better for novices who are learning how to trade forex because they provide a more forgiving learning curve, as well as a more predictable, consistent experience. The high volatility we’ve seen during COVID-19, or any volatility for that matter, doesn’t present as much of a problem as it does with variable spreads.

If you’re a more experienced trader, have a larger account, or simply need lightning-fast execution, variable spreads are the superior option. They also offer the benefit of extremely rare requotes—something that high-volume traders will appreciate. This is why most of the top forex trading platforms, among others, include an account with variable spreads.

Calculating Spread Cost ➗

So, now that we have the basics down, we are left with a few questions—what is a spread and what types of spreads exist? Also, how do spreads actually relate to your trading costs in real terms?

To calculate the actual cost of a spread, you’ll need two more things—the value of a pip, and the number of lots that you’re trading.

For example, let’s say that we’re trading EURUSD, dealing with a spread of 0.4 pips, and trading with a mini lot, which is 10,000 units. Because the US dollar is the quote currency (listed second), pip values are fixed. In this case, for a mini lot, a pip is worth $1.

So we take 0.4 pips, or 0.00004, and multiply it by 10,000, and then by $1. Put differently, 0.00004 x 10,000 = 0.4. We take 0.4, multiply it by $1, and we get a spread cost of 0.4$.

How Are Forex Spreads Quoted? ��

In all cases, forex quotes have both the bid price and the ask price of a currency pair. Since the spread is the difference between the two, finding out the exact size of the spread is just a matter of calculation.

For example, if GBP/USD is listed with a bid price of 1.3587 and an ask price of 1.3594, the spread is 7 pips. But you might not even need to do the calculations yourself—a lot of forex brokers have a spread indicator built into their user interfaces.

What’s Behind Forex Spreads? ��

There are two main factors that influence spreads—liquidity and volatility. High liquidity, which means high trading volume, causes low spreads. The inverse is also true—when liquidity is low (as is often the case with minor currencies) the spread widens.

Low volatility leads to small spreads, while high volatility leads to larger spreads. But these are just two factors—many things can have an effect on spreads. So, what are the main causes of spread fluctuations?

First of all, timing matters. The forex market operates 24-hours a day on workdays, but it is decentralized—having three major sessions centered around the global hubs of foreign exchange trading. These are the Tokyo, London, and New York sessions.

Unsurprisingly, when a session is in progress, the currency that is associated with the country in question will see an increase in trading volume, leading to lower spreads. For example, trading the Yen, which has seen gains in the past couple of months, is best done during the Tokyo session.

Spreads are generally the lowest when trading sessions overlap, which is why timing your forex trades to them is a great way to make more profitable trades.

Other than timing, the news can also have a large effect on spreads. Particularly if the news is related to politics or the economy—geopolitical instability and unexpected economic events like the COVID-19 pandemic can have sudden, drastic effects on spreads.

Trade balances, unemployment numbers, interest rate decisions, industrial production… all of these data points will have an effect on spreads when released. Keeping an economic calendar close at hand can help you make the decision whether or not to trade—but no one can accurately predict the news, so these changes are just a fact of life when it comes to forex trading.

Is Scalping a Method of Managing Spread? ��

Scalping refers to a popular strategy for trading forex in which a large number of small trades are executed in a short period of time to make use of minor price changes. Usually, most scalpers make 1- to 15-minute trades, aiming to scalp between 5 and 10 pips per trade.

Scalping is a trading strategy—but it is not a method of managing spreads. There isn’t actually a way to manage spread apart from trading at the right time, keeping an eye on an economic calendar and current events, and focusing on currency pairs that exhibit high liquidity, which is to say the major pairs. What are the major pairs, you ask? It’s simple – they’re currency pairs that include the US dollar – which has been performing quite well as of late.


Having a rock-solid grasp of spreads is key to successful forex trading, no matter which strategy you pick. Spread can seem daunting—it can change rapidly, eat up your profits, and cause requotes—but all of these issues can be alleviated if you take the time to really get into the subject matter and apply yourself.

We hope that this guide has managed to shine a light on the topic of spread and that it managed to give you some confidence for the long road ahead. Take your time, take things at your own pace, and put in the work. If you’re concerned about the impact of the COVID-19 pandemic on the forex market, don’t worry—the forex market has managed to perform unexpectedly well overall.

Rushing in won’t do you any good—study hard, open a demo account, and start off slow with fixed spreads. Slow and steady wins the race when it comes to forex trading. There’s little room for error with this type of trading, so do your best to master each and every topic before you move up the ladder.

And if you feel confident that you’re ready for more, you’ll find plenty of educational guides, as well as reviews of forex brokers on our site—so dive in.