Basics

What is spread in Forex Trading?


In foreign exchange (forex) trading, the spread is the difference between the bid (sell) price and the ask (buy) price of a currency pair. The bid-offer spread, also known as the bid-ask spread, is another way of talking about the spread applied to an asset’s price.

What you will learn ahead 🎓

  • Understanding spreads in forex
  • Practical of spreads in different forex symbols
  • What can increase spreads in forex trading
  • How to trade forex without concern about spreads and leverage.

🎯 Our mission is to help you invest in forex efficiently and improve your results. Get extra forex trading insights from leading finance experts on the trading Academy and on our free forex Telegram channel.

💹 When trading forex, we suggest you consider long term results.

Understanding Spreads 🔬

There are always two prices given in a currency pair, the bid, and the asking price. The bid price represents the maximum price that a buyer is willing to pay for a forex pair or security, whereas the asking price represents the minimum price at which a seller is willing to take for that same asset. Both of these prices are given in real-time and are constantly updating.

It is also important to understand that in forex trading, the base currency is shown on the left of the currency pair, and the variable, quote or counter currency, on the right. The pairing tells you how much of the variable currency equals one unit of the base currency.

The buying price quoted will always be higher than the selling price quoted, with the underlying market price being somewhere in-between.

The spread is measured in pips, which is a small unit of movement in the price of a currency pair, and the fourth decimal point on the price quote.

 

spread in foreign exchange

This is true for the majority of currency pairs, aside from the Japanese yen where the pip is the second decimal point.

 

spreads and pips in forex

When trading forex, or any other asset via a CFD or spread betting account, you pay the entire spread upfront. This compares to the commission paid when trading share CFDs, which is paid both when entering or exiting a trade. The tighter the spread, the better value you get as a trader.

Another example of spreads:

The bid price is 1.1129 and the asking price is 1.1130 for the EUR/USD currency pair. If you subtract 1.1129 from 11.1130, that equals 0.0001.

As the spread is based on the last large number in the price quote, it equates to a spread of 1.0.

Types of spread

When trading, the spread can either be variable or fixed. Indices, for example, have fixed spreads. The spread for forex pairs is variable, so when the bid and ask prices of the currency pair change, the spread changes too.

Some of the benefits and drawbacks of these two types of spreads are outlined below:

spread in forex trading

Factors which can influence the forex spread

Usually, if the bid and offer prices are close together, it is considered a tight market, which means that there is a consensus between buyers and sellers on how much the asset is worth. Whereas, if the spread is wider, it means that there is a significant difference in opinion.

The bid-ask spread can be impacted by a range of factors, including:

  1. Liquidity: This refers to how easily an asset can be bought or sold. As the liquidity of an asset increases, the bid-ask spread usually tightens.
  2. Volume: This is a method of reporting the quantity of an asset that is traded daily. Assets that have a higher trading volume will often have narrower bid-offer spreads.
  3. Volatility: This is a measure of how much the market price changes in a given period. During periods of high volatility, when prices change rapidly, the spread is usually much wider.

When there is a wider spread, it means there is a greater difference between the two prices, so there is usually low liquidity and high volatility. A lower spread on the other hand indicates low volatility and high liquidity. Thus, there will be a smaller spread cost incurred when trading a currency pair with a tighter spread.

📌 📊 Most forex currency pairs are traded without commission, but the spread is one cost that applies to any trade that you place. Rather than charging a commission, all leveraged trading providers will incorporate a spread into the cost of placing a trade, as they factor in a higher asking price relative to the bid price.

The size of the spread can be influenced by different factors, such as which currency pair you are trading and how volatile it is, the size of your trade, and which provider you are using.

Some of the major forex pairs include:

  • EUR/USD
  • USD/JPY
  • GBP/USD
  • USD/CHF

Widened spreads in trading

When trading forex, there may be instances when spreads widen beyond the typical spread. These spreads are a function of market liquidity and in periods of limited liquidity, at market open, or during rollover at 5:00 PM ET, spreads may widen in response to uncertainty in the direction of prices or an uptick in market volatility, or lack of market liquidity. It is not uncommon to see spreads widen particularly around rollover. Trade rollover is typically a very quiet period in the market, since the business day in New York has just ended, and there are still a few hours before the new business day begins in Tokyo.

Being cognizant of these patterns and considering them while trading with open orders or placing new trades around these times can improve your trading experience. This may occur during news events and spreads may widen substantially to compensate for the tremendous amount of volatility in the market. The widened spreads may only last a few seconds or as long as a few minutes.

Just as an example, during the rollover time spreads that are usually 2 pips, can reach up to 40 pips. It is an example of how dangerous might be trading without knowledge and the right tools. With an automated AI trading system, you do not need to concern about spreads and monitoring economic news.

It is important you utilize caution when trading forex around news events and always be aware of their account equity, usable margin, and market exposure. Widened spreads can adversely affect all positions in an account including hedged positions.

​Forex spread indicators

The spread indicator is typically displayed as a curve on a graph to show the direction of the spread as it relates to bid and ask price. This helps visualize the spread in the forex pair over time, with the most liquid pairs having tighter spreads and the more exotic pairs having wider spreads.

💡 Keeping an eye on an economic calendar can help prepare you for the possibility of wider spreads. By staying informed as to what events might cause currency pairs to become less liquid, you can make an educated prediction as to whether their volatility might increase, and thus whether you might see a greater spread.

However, breaking news or unexpected economic data can be difficult to prepare for.

There will also be a lower spread for currency pairs traded in high volumes, such as the major pairs containing the USD 💵. These pairs have higher liquidity but can still be at risk of widening spreads if there is economic volatility.

During the major market trading sessions, like London, New York, and Sydney sessions, there are likely to be lower spreads. In particular, when there is an overlap, such as when the London session is ending and the New York session is beginning, the spread can be narrower still. The spread is also influenced by the general supply and demand of currencies – if there is a high demand for the euro, the value will increase.

Spread and margin in forex

If the forex spread widens dramatically, you run the risk of receiving a margin call, and worst case, being liquidated. A margin call notification occurs when your account value drops below 100% of your margin level, signaling you’re at risk of no longer covering the trading requirement. If you reach 50% below the margin level, all your positions may be liquidated.

It’s therefore important to gauge how much leverage you are trading with and the size of your position. Forex pairs are usually traded in larger amounts than shares, so it’s important to remain aware of your account balance.

How about Half Spread in the forex?

Some forex brokers charge what is called a half spread. In forex trading, a half spread is a financial impact for the part of the spread you pay on opening your trade and then the part of the spread you pay when closing your trade. Effectively half spread is the financial impact of the distance from the spread mid-point to the buy or sells price at which a trade is executed. The forex broker Oanda commonly displays spreads in form of half spread in its trading platform.

The best way to trade forex

There are two ways to invest with our AI in the forex. When trading forex with our AI, you do not need to concern about calculating spreads.

1. Automated with AI-Trading. Check out the 3 steps to trade automated with our AI.

automated trading with ai bot

By trading forex automated with AI, you will save time and improve your performance without monitoring the market and managing trading platforms.

With Automated AI trading you do not need MT4 / MT5 and other trading platforms to invest in forex. All forex trades are automatically placed into your broker account every time that our AI system identifies a new worthy trading opportunity. You can monitor the AI trading performance in real-time directly on our dashboard.

Automated AI trading benefits

  • Setup in 3 minutes.
  • Totally hands-off, from anywhere.
  • Invest from just $1.
  • APY of 40% over the past 13 years*.
  • Lightning-fast execution & no slippage.
  • No commissions, no management fees.
  • Portfolio with 40 different automatic strategies.
  • No MT4/MT5 or other platforms required.
  • Test with a risk-free practice account.
  • Trading results directly on our dashboard.

Don’t you have a broker account yet? Our AI is integrated to trade automated with the broker Oanda. Click here to open an account.

2. Manually with AI forex signals.

Wiseinvest also provides AI forex signals that perfectly fit into MT4, MT5, and any trading platform. To trade with our AI forex signals, you must simply copy the data you receive from each real-time signal into any forex brokerage account of your choice.

There are five unique variables for each AI signal, and each must be copied exactly, to match the performance of the signal as close as possible.

Each AI forex signal alert consists of the following five data points:

  • Symbol (forex pair)
  • Direction (long or short)
  • Position size (number of units or lots)
  • Take profit (price level to exit with maximum gain)
  • Stop loss (price level to exit with maximum loss)

Check out how to trade with our AI forex signals.

  1. Subscribe to a Wise-Plan.
  2. Open a Brokerage account. Check this article about the best forex Brokers.
  3. Set an amount and a position size on our Wiseinvest dashboard.
  4. Our AI will send you real-time trading alerts by email and Telegram.
  5. Copy the signals and paste into your Brokerage account.

All forex signals are sent every time that our AI trading system identifies a new trading opportunity. Our trading strategies are developed on a variety of time frames such as 4 and 8 hours.

Wiseinvest AI forex signals are Market Orders and you do not need the entry price. You can copy each signal while it is available on our dashboard. We do this way to assure that traders will just place signals while they are good to be traded.

You can trade forex with our free forex signals clicking here, or with our Premium subscription that provides you unlimited AI signals and automated AI trading in partner brokers. Whether you are a beginner or a professional forex trader, our AI trading system can help you save time and improve your trading performance. Get started with free AI.

When investing through Wiseinvest automated AI trading or AI forex signals, you do not need to calculate pips and change the leverage in your forex broker account. Learn more about leverage in forex trading clicking here.

What is the AI performance in forex trading?

The Win Rate of our AI moves as shown by the period and can reach up to 95%. The introduction relies upon the capable wild estimation metric, which infers that our model is valuable at whatever point the Win Rate is more noticeable than 60%. All methods of our AI trading system search for stable returns and sufficient results to achieve an ordinary return of 40% consistently (APY), without the usage of high impacts.

We appreciate that what is significant in forex trading is the definitive result. Thusly, the money related master needs to consider that Win Rate isn’t commonly the best estimation to measure execution in forex, as other signal providers uncover. For instance, out of 100 trades, solitary 1 trade may be an adequate disaster to make the 99 trades not gainful. For this circumstance, the Win Rate would be 99%, yet the convincing result would be unfeasible (negative).

We revolve around the appearance of 40% of APY and not just on Win Rate.

It is essential to see that forex brokers may charge spreads, commissions, and overnight costs in your trading account, and these components can impact the AI execution. You can check our forex trading history to see more about AI trading execution clicking here.

How much do I need to trade forex with AI?

You can start in forex trading with a free AI forex signals or AI trading record and make a store from just $1 in the broker. It is moreover possible to test using a danger-free practice account with our AI trading structure. Regardless, to do a capable peril, the board in authentic records, we suggest you start from at least $100. Notice that some forex traders require assorted beginning stores to trade forex.

What is the trading strategy of our AI?

Our AI methodology is the blend of different AI trading structures, with more than 100 features, that portray 40 particular procedures which simultaneously consider: Quotes of the 28 forex pairs, Supports, and Resistances in different timeframes, Trends and Counter-designs, Cross-markers, Index of each pair, Economic Calendar, Investors Sentiment.

Our AI looks at those fundamental, technical, and sentiment factors that impact forex trading, and all models are surveyed constantly using different burdens. In the wake of completing the examination, the choice of the signal transmission procedure is made considering the improved likelihood of flashing advantage and the total open for theory.

Using technical analysis, our count considers not simply the instances of various examples, including sponsorship and deterrent levels and cross-pointers, yet our AI is moreover prepared to make its own progressing record for each cash pair, that is used to recognize what is the best course and target.

Practically identical to fundamental analysis in forex, the AI makes an association inside the budgetary calendar to find news data that can impact express money sets.

Learning Finance Is Critical to succeed in forex trading 📚

Having financial skills can bring success in your professional and personal life. We always recommend learning more about finance and trading. This is why we founded the free Trading Academy.

Takeaways 🎓

  • A forex spread is the difference between the bid price and the asking price of a currency pair and is usually measured in pips.
  • Knowing what factors cause the spread to widen is crucial when trading forex.
  • During the major market trading sessions, like London, New York, and Sydney sessions, there are likely to be lower spreads.
  • Given that there is a great variety of forex pairs, finding the best forex pairs to trade requires analyzing volume, liquidity, and spreads. Fortunately, AI trading can do this job for you.
  • Major currency pairs are traded in high volumes so have a smaller spread, whereas exotic pairs will have a wider spread.

Wiseinvest’s Artificial Intelligence can provide you an automated solution and ready-to-go forex signals with the right positions sizes and targets for live trading. With Wiseinvest you do not need to calculate pips.

Disclaimer: Forex and Contracts for Difference (CFDs) are complex instruments and come with a high risk of losing money due to leverage. Forex trading is not suitable for everyone. You should consider whether you understand how forex and CFDs work and whether you can afford to take the high risk of losing your money.

The forex brokerages displayed shall disclaim the overall performance of traders in their platforms. Oanda warns that 76.8% of retail forex traders lose money trading CFDs. XTB warns that 80% of retail forex traders lose money trading CFDs. FXCM warns that 74.74% of retail forex traders lose money trading CFDs.

The performances aforementioned are not related to Wiseinvest AI forex trading and AI forex signals system. You can check the performance of our AI forex system on our dashboard.