Let's give an example on the popular EURUSD pair with a current quote of 1.2668/1.2672. From the difference in the cost of these currencies, it is clear that the spread in this case for one lot is 4 points, that is, $40. Therefore, when opening an order, for example, for 4 lots, your "minus" will be $160. To compensate for this loss, it is necessary for the quotes of the currency pair to change in your favor by at least 4 points. And only further progress will bring you net income. Therefore, the spread on the Forex exchange is sometimes compared to the inevitable mandatory commission, which is the main income of large brokerage companies and private brokers.
On the Forex currency market, the spread appears in the following forms:
a fixed fee, which is a constant value regardless of exchange rate fluctuations. In some cases, an expandable spread is used, which can be increased manually by the broker depending on investment, economic and financial forecasts;
a floating spread is specified by the broker within the lower limit and can fluctuate under the influence of changes in the value of currencies in a wide range upwards.
In most cases, a floating spread is used on Forex, which in emergency situations can reach 50 points or more. The average range of this parameter in a calm market is from 2 to 5 points.
What factors affect the spread size
Liquidity (popularity) of the currency pair. In the most popular tandems, the spread size usually does not exceed 3-5 points, and when trading rare currencies, for example, the Canadian dollar or Swedish krona, this figure can reach 50 points or more.
The current situation on the market, which in turn depends on economic and political factors in different countries and in the world community as a whole. Any "hot" news that can affect the rates of leading currencies significantly affects the spread size.
The presence of affiliate programs, whose participants receive remuneration precisely due to the spread. By the way, the rapid growth of affiliates in this segment contributes to an increase in the size of this fee, which is an inevitable "headache" for any trader.
Taking into account and tracking the spread size in trading, you can more accurately calculate the profitability of each transaction. This parameter is also actively used to assess volatility, which allows you to make accurate forecasts about the most profitable rates. But most importantly, the spread size is one of the important criteria when choosing a brokerage company on whose platform you will work on the Forex exchange.
We wish you successful trading with ArtСap !
