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Forex – Spreads are important. Find a good broker!

Nah it is only one PIP more you think.

Sometimes, a pip makes a different in the long run.

What is spread? It is simply the difference between the bid and offer price of a forex pair.

Example
EUR/USD 1.3000/1.3002

This pair has a spread of 2 pips. Pip being the smallest increment of a currency pair.

Forex trading usually comes with no commission charge and spreads are how the brokers earn instead.

Spread will typically widen during periods of low trading or news.

So why does spread matters?

Simple. It makes profiting difficult !

Expanding on our example,

Say you sell the pair now @ 1.3000. Immediately your possible exit will be at 1.3002. This is a 2 pips loss at start.

Hence if your trading plan calls for a +5pips, the price has to move in your favor 7pips.

If the spread is 3, you need 5+3 pips in your favor.

Therefore it is in your interest to get the lowest spread possible.

Higher spread also means a higher percentage of your winnings going to the broker.

Spread of 2

10 winning trades of 5pips : 50pips
Spread for 10 trades : 20pips

You: 71%
Broker: 29%

Spread of 3

10 winnings trades of 5pips : 50pips
Spread for 10 trades : 30pips

You: 62%
Broker: 38% !!!

Trade smart 🙂

Geek


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