Spread role in trading
Spread is actually a thing that we hear in trading market. This is actually a difference ratio of buying and selling price. Let me tell you in simple words, if we take Eur/Usd pair then we will see two prices. The first price is asking price and other price is bid price. There is a difference between these two prices. This difference is called as spread. This difference may vary according to the broker. If Eur/Usd price is 1.10 for buying then it will be 1.07 for selling. This is a minimum that I am telling you.
This is most common sense that if someone is buying a thing then he will fix his profits excluding other charges and taxes. Then if a trader wants to make his own profit then he will have to wait for market to rise or fall (according to his trade) to cross the spread and enter him into profits. Trader close his trade and make profits. This is normal routine of trading. Some brokers offer fixed spread and some offer floating spread. These are only two types of spread that trader may see in any market.
Types of Spread in trading
Fixed spread has several benefits, if we see in depth. Why traders prefer fixed instead of floating?. This is because the fixed one always remain fixed they doesn’t fluctuate according to volatility of market. Floating spread tighten and widen when market is in volatility and in sideways. Most of the traders do scalping with floating spreads. Because they give good environment in any trend of market. Scalpers can make good money with floating in little movement, while they will require to cross the whole in fixed spread.
Sometimes in high volatility of market, we may see a big space between buying and selling price. This is because of floating spread, there isn’t any limit there. Broker can wide that up to 90 pips, that is too much dangerous for small investors and traders. It can wipe out the account at once. Trader will not be able to close the trade and he can see instant wipe out of his account. This thing usually happens when market is closing or a big news is coming.
Notes for Trader
Traders with fundamental analysis shouldn’t trade with floating, they would rather select fixed spread to secure their accounts and capital. Making strategy is also important. Without strategy trading is just like gambling and it will solely depends upon the luck. If a trader wants to make his career in trading market then he should learn trading and all the things first. We always recommend our readers to practice on demo accounts first to get familiar with market. Not only forex, but in crypto currency market too.
Nowadays people trade with expert advisors. They are good and they have design to trade in market. They know the spread of market and they are good with fixed. These expert advisors can be used in floating, but that will not be recommended by us. Traders can use binary options too, they don’t have any kind of spread. But they doesn’t give good profits as much as classic trading do.
This is a simple and basic guide to understand trading and its components. Start learning from the basics can lead to advance. It solely depends upon the interest of the trader and the learning S/He does. Here, again we will recommend our readers to use demo accounts for practices then proceed to live market.
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