Deciding to trade forex or crypto currencies depends largely on a few important factors, including risk versus reward tolerance, a willingness to speculate and knowledge of how to trade both. Risk tolerance and trading styles will likely determine whether forex or stock trading is the best option for you: short-term traders generally gravitate to forex markets while long-term traders move into stocks.

Forex risk management is a process of identifying, assessing, and controlling the threats that arise from foreign exchange speculation. The forex market is open 24 hours a day from 5 p. EST on Sunday to 5 p. EST on Friday to allow for traders in different time zones around the world to buy and sell currency pairs. A flag pattern is a candlestick formation that forms after a sharp move, followed by a rectangular consolidation that looks like a flag on the pole. The top 5 forex indicators are Moving Averages, Relative Strength Index, Fibonacci retracements, Bollinger Bands, and Average True Range.

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Does the spread indicate high or low risk? Keep in mind, the spread will impact the cost of opening up any forex transaction. How to calculate a forex spread To calculate a forex spread, all you need to do is subtract both bid and ask prices of a currency pair and the result will be the spread. Mar 03 Guide. Head and Shoulders Pattern in Forex Trading Head and shoulders is a chart pattern that signals a potential reversal on the forex market. Feb 23 Guide.

Triangle Pattern in Forex Trading The Triangle pattern in forex trading is a time-sensitive chart pattern that shows a tightening range due to market indecisiveness.

Feb 12 Guide. Fibonacci Retracements Strategy for Forex Traders Fibonacci strategy in forex trading is an attempt to profit by trading from the key price levels by using the Fibonacci sequence.

Feb 11 Guide. Forex Vs. Crypto - Which One Is for You? Feb 09 Guide. Here, we shall sell the cheaper asset and buy the more expensive one. So, the total position has made a profit of 4. As you see, the position bears almost no risk.

The only risk is time. Above, I wrote that, most commonly, the BRENT is more expensive than the WTI. In the opposite case, the position will be losing. In this case, you just hold the position on. It should be noted that you can trade spreads using only closely correlated assets. You should not trade spread using assets from different sectors.

In the above chart, in addition to the BID and ASK columns, there is the third one that shows the spread size for each trading asset. You see, spreads are quite narrow for some instruments, about pips. For other assets, the spread size could reach or pips. There are several factors affecting the spread width.

First of all, the spread is affected by the liquidity of the trading instrument. In simple terms, liquidity is the popularity of a trading instrument. The more trades conducted with an asset, the more liquid it is. This is a key parameter to calculate the spread size. High liquidity always correlates to a tight spread. And vice versa, low liquidity corresponds to a wide spread.

You can see from the above table that the popular currency pairs are always traded at a narrow spread. This is the law of stock trading. Volatility also greatly affects the size of the spread. When volatility increases, the number of price fluctuations increases, which means that the spread will widen.

When volatility declines and price changes occur less often, the spread will narrow. Thus, the spread in the foreign exchange market is an indicator of volatility. Everyone knows examples when, at the time of publication of important fundamental news, volatility increased sharply, and the spread also increased.

The highest volatility was featured by the USD RUB currency pair. And in some banks, the difference between offer and demand prices reached Another part of the spread is the interest of the intermediary, that is, a broker or dealer. The intermediary sets the broker spread, but without going beyond.

Each broker offers its own spread, but in the end, they will be about the same, because the share of the broker in the spread is not so high. Unpopular brokers set a higher spread, while popular ones, on the contrary, try to reduce it as much as possible in order to attract new customers. There is no great need to calculate the spread in points since it is almost always indicated in your terminal or mobile application. And here's how to convert this spread in points into dollars or euros.

The picture above is a screenshot from the mobile application of my LiteFinance broker. There are two prices in the transaction window, the buying price and the selling price.

As we have already found out, these are Bid and Ask prices. Now we need to convert the pip spread into money. I use the account currency, US dollars, so we will need to convert the pips to dollars.

In my example, I decided to enter a trade with a volume of 1 lot. For a volume of 1 lot, the formula for calculating spread will look like this: 1.

In my case, it will be equal to 0. If you want to calculate the spread cost for a different trade volume, you need to change the number of currency units. For example, for 0. Of course, you can calculate the spread manually, but trading has advanced quite far and every self-respecting broker has long been providing the service of a trader's calculator, which will calculate the spread and other transaction parameters for you in real-time. Going back to the spread concept, I want to stress that the buy spread and sell spread are a bit different.

When you buy you pay the spread when you enter a trade and when you sell you pay the spread when you exit the trade. Well, now you know how to calculate spread. Let me explain how to quickly learn the spread in a trading terminal and not to waste time on manual сalculation. I will start with the MetaTrader 4 trading terminal. When you want to enter a trade in the Metatrader terminal, you need to set parameters for the future transaction in the trade window. In the same window, you see the selling price and the buying price.

If you compare these two prices in the above example, you will see that the difference between the values is just two pips, 1. It means that the spread at the time of entering a trade is less than a point, 0.

This is a very narrow spread, which is, by the way, normal for this broker. This tab displays the buying and selling prices, and the spread value in a separate field.

In this example, the spread is even tighter, 1 pip. Supposing, we want to enter a EURUSD buy trade. The price of the currency pair is 1. The difference of 1 pip is the difference between buying and selling prices. As we want to buy, someone should sell.

The seller is in the foreign exchange, and its selling price is 1. At this price, the trade will be entered, although the last price in the chart will be 1. This is because we pay the price appointed by the seller. After a while, the price rises and we decide to exit the trade. So, we are going to sell the asset we bought earlier. The buyer sets the price of 1. Thus, summing up all these prices, we see that the price covered the distance between 1.

But we made a profit from the distance between 1. Two missing pips are the spread. As I said, the spread is the difference between the buy price and the sell price. The above chart shows that these prices are currently the same, and the spread is 0. This is possible only on the ECN accounts. If you are lucky to enter a trade at such a moment you will enter a zero spread forex trade. But do not forget that you will have to pay a commission for the transaction execution.

For major trading instruments, the spread is always expressed in pips. To find out the cost of the spread in the currency of your transaction, you need to convert the pips into money. It is easy if you know the pip value. In the above chart, the spread is one pip. To calculate the cost of the spread we also need the trade volume.

As an example, I will use the standard trade volume of one lot. With a standard volume on the GBPUSD currency pair, the cost of one pip is 1 USD. And since our spread is 1 pip, it will cost 1 USD. Thus, entering a trade with the contract size of one lot, we will pay the spread of 1 USD, which will be charged at the moment of opening the position.

It means that at the moment of opening the trade, we will immediately lose 1 USD, the amount of the spread. So, we should earn at least the amount of spread to break even. Fixed spreads are normally determined by a dealing company for micro- and mini-accounts that are served automatically.

It is the spread whose size is changing, depending on the market situation. The variable spreads are close to the conditions of the real interbank market. However, a floating spread weakens the performance of some trading strategies and makes strategy testing much more difficult.

A fixed spread is determined by the broker. In most cases, a fixed spread is a favourable factor for a trader, but its value is usually higher than a raw market spread. There are rather few forex brokers offering a fixed spread. The floating spread has become so popular that it has almost completely replaced the fixed spread. There are hardly any advantages in trading with a fixed spread.

That is why this type of spread can entirely disappear. No slippage. The slippages are often talked about and most beginner traders are really afraid of a slippage. In fact, this is a market feature that can be avoided on fixed spread accounts. In other words, the broker will always execute your contract in full, which will avert price slippage. I suppose everyone has witnessed a situation when the spread for a trading instrument sharply widened due to an important news release in the economic calendar.

This is the biggest flaw of the floating spread. But the fixed spreads are not affected by anything, as a broker has set a fixed range for the spread.

You always know the spread size. Traders often used automated systems, robots, and scripts, in the forex market. These systems are based on algorithms, and these algorithms are easy to build when you know the spread in advance. You can always take it into account when setting up order triggering and in the final result. It's hard to find a broker. In the modern forex market, where the leading roles have taken over ECN accounts with NDD order execution technology, that is, without the participation of a broker, it is very difficult to find a broker providing accounts with fixed spreads.

Fixed spreads can usually be applied to cent accounts, which are less and less popular. The fixed spreads are usually rather big. If the broker provides fixed spreads, it must take into account the volatility, its own profit, and the profit of the exchange. For example, I entered a EURUSD trade with a fixed spread of 20 pips. To compare, the current floating spread for this currency pair is about 0.

The choice is obvious. Requotes on the Instant Execution account types. There are several types of trading order execution modes. One of the most popular is the Instant Execution mode.

If you apply the Instant Execution mode and the spread is fixed, you cannot avoid requotes. For scalpers, this is even more dangerous than slippage, because a scalper can destroy the entire system due to one failed order. Floating spread is the most common type of spread nowadays. It is popular because it is profitable for all parties taking part in the transaction. Brokers and dealers can regulate and adjust it fast to changing market conditions, which allows solving 2 problems at a time: provide clients with higher-quality services and earn at the moments when the spread increases.

This spread fluctuates in a certain range based on changing market conditions. This type of spread is favourable to manual trading. The above chart displays variable spreads for major currency pairs.

As you see, a floating spread seldom exceeds even 1 pip and in most cases, it is from 0. The above screenshot displays the spread in the trading terminal window. At the time of the snapshot, the spread between the buy and sell prices is only 0. Trading with such a low spread is very beneficial for short-term trades, where the spread is one of the main cost items. Narrow spreads during most of trading session.

As we know trading hours in forex are provided by four large exchanges. And since most of the time falls on the work of the European and American trading sessions, variable spreads at this time will be minimal and can widen only in moments of serious shocks, which do not happen so often.

No requotes. I wrote about requotes as a drawback of fixed spreads. Well, in trading with variable spreads everything is vice versa, your trade will be executed in any case. The only risk here is slippage. There could be zero spread. Sometimes, when the market situation is calm and still, nothing special or extraordinary happens, you can catch a moment when there is no spread at all. I have come across such a situation in trading major currency pairs several times. The broker is entirely excluded from the trading process.

Transactions are executed using the No Dealing Desk technology, which completely excludes the broker from the processes of determining spreads, quotes, and other things. Thus, traders can be sure that they deal with real market participants and have access to real exchanges. There could be slippages.

This is perhaps the biggest flaw of the variable spread. At times of increased volatility, your trade will be executed, but the opening price of the trade may differ from the one at which you planned it. This happens when the market price changes so quickly that it sometimes goes right through the orders set in the order book.

Widening spreads in case of low liquidity. During periods when there is no trading activity in the market, for example, during the Asian trading session, spreads widen to a significant size. This also happens before the market trading closes for the weekend. Sometimes the spreads widen so much that they become larger than the fixed ones. This circumstance matters for traders using robots and scripts.

If your trading robot is supposed to enter a lot of trades in a short period, a floating spread could be a reason for a loss in a series of trades. After describing the disadvantages and advantages of both types of spread, I decided to sum up the most important ones in the table below to determine which of them is the best. As you can see in the table, the floating spread has more key advantages.

This is quite logical, since variable spreads are a necessary condition to make sure that you are trading in the exchange, and the counterparties are real market participants, not the broker itself. When trading with a floating spread, you can always find a moment for your trade when you can pay less.

The only cost for you will be the commission, which will almost always be lower than the fixed spreads. With popular and large brokers, floating or variable spreads are always very close to the raw market ones. As for me, I have long ago chosen to trade with variable spreads. Moreover, my broker LiteFinance provides a spread as close to raw as possible and in recent years I have not taken it into account at all in my strategy, since it is very small.

If so, it needs to consider the interests of all participants in an exchange operation - a trade. The formula looks as following:. The bank provides you with access to exchange operations and charges you a fee. As for the broker, it is an intermediary in exchange operations that passes your order to the stock exchange and therefore charges a commission for its participation in the process too.

It became possible after ECN trading accounts were created. ECN - Electronic Communication Network. It provides raw spreads.

Actually, trading with no spreads is practically impossible, but this type of account provides for much tighter spreads. As long as the access to such trades is delivered by a broker, its interest is considered as well.

These accounts appeared much earlier than ECN. It should be understood that there is no forex with zero spreads. The exchange always takes its commission. If the broker has a zero spread, then you only have to guess as to how it makes money When it comes to the value of variable spreads, there are several important factors that influence it at a given time.

Liquidity of a trading instrument - the ability of goods to be sold or bought fast. On the stock exchange, all the trading instruments are divided into groups based on a number of factors, and liquidity is one of them. Liquidity means popularity. The more popular a trading tool is the higher its liquidity.

The more liquid a trading tool is, the tighter its spread is. The less popular a tool is, the larger the spread is. For example, the current spread of EURUSD is 1 point. And the spread of the EURHKD pair is points. This is the basic formula, but there may be some adjustments that change the dependence under certain circumstances. The volatility of a trading instrument - the number of price fluctuations per unit of time. The number of price fluctuations is measured in ticks. The more ticks per time unit, the higher volatility.

Of course, an increase in volatility raises the price in points. The higher volatility is, the larger the spread will be during volatility leaps, and vice versa. Again, these are basic characteristics and they may change. For example, volatility may increase at breakneck speed when fundamental news is published and spreads rise too, and then volatility drops shortly afterward and spreads drop as well.

When the spread soars, ad hoc orders may trigger, which may crush the whole trading system afterward. Trading hours - Spread values depend on the part of the day. When a trading instrument is being traded during its main trading session, the spread will be lower than when the main trading session is closed. We can see that at night, when, for example, the European trading session is closed and the major currency pairs are quoted during the Asian session.

The value of spreads is also affected by clearing - the settlement process. It happens at , broker time, and when the stock exchange closes for weekends and holidays. Spreads normally increase at those moments.

In forex trading , the spread is the difference between the bid sell price and the ask buy price of a currency pair. There are always two prices given in a currency pair, the bid and the ask price. The bid price is the price at which you can sell the base currency, whereas the ask price is the price you would use to buy the base currency.

The base currency is shown on the left of the currency pair, and the variable, quote or counter currency, on the right. The pairing tells you how much of the variable currency equals one unit of the base currency. The buy price quoted will always be higher than the sell price quoted, with the underlying market price being somewhere in-between.

Most forex currency pairs are traded without commission, but the spread is one cost that applies to any trade that you place. Rather than charging a commission, all leveraged trading providers will incorporate a spread into the cost of placing a trade, as they factor in a higher ask price relative to the bid price. The size of the spread can be influenced by different factors, such as which currency pair you are trading and how volatile it is, the size of your trade and which provider you are using.

Some of the major major forex pairs include:. The spread is measured in pips , which is a small unit of movement in the price of a currency pair, and the last decimal point on the price quote equal to 0. This is true for the majority of currency pairs, aside from the Japanese yen where the pip is the second decimal point 0. When there is a wider spread, it means there is a greater difference between the two prices, so there is usually low liquidity and high volatility. A lower spread on the other hand indicates low volatility and high liquidity.

Thus, there will be a smaller spread cost incurred when trading a currency pair with a tighter spread. When trading forex, the spread can either be variable or fixed. The spread for forex pairs is variable, so when the bid and ask prices of the currency pair change, the spread changes too.

Some of the benefits and drawbacks of these two types of spreads are outlined below:. The spread is calculated using the last large numbers of the buy and sell price, within a price quote. The last large number in the image below is a 3 and a 4. When trading forex, or any other asset via a CFD trading or spread betting account, you pay the entire spread upfront.

This compares to the commission paid when trading share CFDs, which is paid both when entering or exiting a trade. The tighter the spread, the better value you get as a trader. As the spread is based on the last large number in the price quote, it equates to a spread of 1. Factors that can influence the forex spread include market volatility, which can cause fluctuation. Major economic indicators , for example, can cause a currency pair to strengthen or weaken — thus affecting the spread.

If the market is volatile, currency pairs can incur gapping, or the currency pair becomes less liquid, so the spread will widen.

Keeping an eye on our FX economic calendar can help prepare you for the possibility of wider spreads. By staying informed as to what events might cause currency pairs to become less liquid, you can make an educated prediction as to whether their volatility might increase, and thus whether you might see a greater spread. However, breaking news or unexpected economic data can be difficult to prepare for. During the major forex market sessions , such as in London, New York and Sydney, there are likely to be lower spreads.

In particular, when there is an overlap, such as when the London session is ending and the New York session is beginning, the spread can be narrower still. The spread is also influenced by the general supply and demand of currencies; if there is a high demand for the euro, the value will increase. Due to the above points, forex traders can employ an event-driven strategy based on macroeconomic indicators, in order to trade the tightest forex spreads and profit from opportune moments.

For example, by monitoring the latest trading news and economic announcements, traders can expect changes in the forex market and find suitable entry and exit points when opening a position. This is called event-driven trading. To start trading on some of the best currency pairs in the forex market, we have provided a list of suggestions here.

The forex spread indicator is typically displayed as a curve on a graph to show the direction of the spread as it relates to bid and ask price. This helps visualise the spread in the forex pair over time, with the most liquid pairs having tighter spreads and the more exotic pairs having wider spreads.

There will also be a lower spread for currency pairs traded in high volumes, such as the major pairs containing the USD. These pairs have higher liquidity but can still be at risk of widening spreads if there is economic volatility. If the forex spread widens dramatically, you run the risk of receiving a margin call, and worst case, being liquidated. Seamlessly open and close trades, track your progress and set up alerts.

Discover forex trading with our award-winning trading platform , Next Generation. We also offer forex trading on our hosted MetaTrader 4 platform. Get started now by opening an account. A forex spread is the difference between the bid price and the ask price of a currency pair, and is usually measured in pips.

Knowing what factors cause the spread to widen is crucial when trading forex. Major currency pairs are traded in high volumes so have a smaller spread, whereas exotic pairs will have a wider spread.

See our guide on money and risk management when trading in the forex market. See why serious traders choose CMC.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

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Log in. Home Learn Learn forex trading Spread in forex trading. Spread in forex trading In forex trading , the spread is the difference between the bid sell price and the ask buy price of a currency pair. See inside our platform.

Start trading Includes free demo account. Quick link to content:. What is spread in forex? Forex trading pip spread. Fixed Spread Variable Spread Could face requotes No risk of requotes Predictable transaction costs Can get a tighter spread than fixed Smaller capital requirements Can reveal market liquidity More appropriate for novice traders More appropriate for experienced traders A volatile market won't effect the spread Spread can widen rapidly if there is high volatility Likely to be exposed to slippage Can be exposed to slippage.

Trade on over forex pairs with us. Start with a live account Start with a demo. How to calculate spread in forex The spread is calculated using the last large numbers of the buy and sell price, within a price quote. For example: The bid price is 1.

If you subtract 1. Practise trading the forex market risk-free with a demo account , using virtual funds.

What determines the spread in forex? Forex spread trading strategies Due to the above points, forex traders can employ an event-driven strategy based on macroeconomic indicators, in order to trade the tightest forex spreads and profit from opportune moments. Forex spread changes If the forex spread widens dramatically, you run the risk of receiving a margin call, and worst case, being liquidated. Explore our forex spreads. Open a demo account Learn more. Summary A forex spread is the difference between the bid price and the ask price of a currency pair, and is usually measured in pips.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. The forex spread represents two prices: the buying bid price for a given currency pair, and the selling ask price. Trading in any of the capital markets involves buying and selling. As we mentioned, external market factors can have a significant impact on forex spreads in either direction. Your Practice.

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