FxPro Help Centre - Glossary

  1. Forex glossary terms and definitions
  2. Spread

Spread

"Spread" in financial trading refers to the difference between the bid price and the ask price of a financial instrument. The bid price is the highest price a buyer is willing to pay for an asset, while the ask price is the lowest price a seller is willing to accept. The spread can be a key indicator of the liquidity and volatility of the asset, as well as the transaction cost for the trader. In Stock Trading: The spread in stock trading is often determined by the supply and demand for a particular stock. A highly liquid stock, which has many buyers and sellers, will typically have a narrower spread. Conversely, a stock with less liquidity will have a wider spread. In Forex Trading: The spread is a critical factor and is often how forex brokers make their money. Instead of charging a commission, they increase the spread slightly from the price they get from their liquidity providers. Currency pairs with high liquidity, like EUR/USD, usually have tighter spreads, while less commonly traded pairs have wider spreads. Importance for Traders: Traders need to be aware of the spread because it affects the break-even point of a trade. In general, the cost of the spread is factored into any trade the moment it is opened. A wider spread means that a position needs to move further into profit territory to achieve profitability. The concept of spread is fundamental in financial markets and is one of the key considerations for short-term traders or those who engage in frequent buying and selling of financial instruments.

Other terms in this category

Spike
Spot Rate
Stochastic Oscillator
Stock

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