What is spread and how it can send you back to your village 😂 kindly read through to have a great insight on how it works.
Forex brokers will quote you two different prices for a currency pair: the bid and ask price.
The “bid” is the price at which you can SELL the base currency.
The “ask” is the price at which you can BUY the base currency.
The difference between these two prices is known as the spread.
Also known as the “bid/ask spread“.
Let's use this currency pair as an example. The spread of this pair as always is already figured out for you which is at 58. It is simple to figure out, just minus bid price (the one at the front, which is always lower) from the ask price (the one at the back, which is always higher). In this case we will minus: 1.60445−1.60387 = 0.00058 (which is the 58 you're seeing below this GBPCAD pair)
Why learning about SPREADS??
Does this spread of a thing have anything to do with my trades??
Yes Madam/Sir! It really does. Spread is basically responsible for putting you on a losing side the very second you enter a trade!!
HOW IS THAT POSSIBLE WHEN THE PRICE DIDN'T GO AGAINST ME??
That's a nice question. Let's see it this way... You entered for a buy on this pair GBPCAD. It is just like you're buying dollar with naira - using #830 naira to get just $2.
So with GBPCAD lets say you used 600 CAD (Canadian Dollar) to buy 550 GBP (British Pound) the difference in price is called the spread: 600 - 550 = 50 (50 is the spread).
Now you bought GBP with CAD, that's a trade you hope will go up so that you can make profit. The market price at the moment you bought GBP with CAD was 600. With the spread factor, automatically you have been charged a fee of 50, so you basically entered at 550 which puts your trade on a losing side that moment.
Spreads are not fixed, it fluctuates. So there are times when spreads are really high.
Now, here is the deal, you need to know the trading periods when this spreads will shoot up. And secondly or this should be the number one even - knowing your pip per value!
Yes the your pip value determines how badly you will be affected when you enter a trade and more worse when you enter when spreads are high.
You get it now??
You bought GBPCAD at 550 which threw you on a losing side with 50 spreads margin.
If your pip value is $1, it means you will be losing $50 on that trade the moment you entered it.
##Simple spread becoming complicated, I know that.
Check two things in this image, the spread and my phone local time.
Check the same two things again.. did you observe anything??
Imagine entering trades when the spreads are high without any knowledge about that.
Do you know how volatile the pair you trade is??
Do you know your pip value??
And lastly do you know why spreads go up and when they do??
I will be entertaining some questions in the comment section.
Thank you for today❤️
