What is a Spread?
Every market has a spread and so does Forex. A spread is simply defined as the price difference between where a trader may purchase or sell an underlying asset. Traders that are familiar with equities will synonymously call this the Bid: Ask spread.
It is important to remember that spreads are variable meaning they will not always remain the same and will change sporadically. These changes are based off of liquidity, which may differ based off of market conditions and upcoming economic data. To reference current spread rates, always reference your trading platform.
Spread is one of the most important terms that should be known in the forex market.
Suppose that the selling price for the EURUSD parity is 1,1427 and the buying price is 1,1425. Here is the difference between the buying and selling price , i.e. spread is 2 pips.
There are two different spread types. These are fixed or variable spreads.
Fixed spreads are in the same range regardless of market conditions. It does not change during the periods when liqudity increases or decreases in the market.
Variable spreads are determined according to market conditions. It narrows when liquditiy increases, It expands when liquidity decreases.