What is “Spread” in Forex trading?
Spread is the difference between the buy quote and the sell quote. It is basically the earning of a broker. Brokers earn either through spread or commission.
To understand more clearly, consider the following example
The spread, in the above EUR/USD price, is 1.4 pips .which is the difference of the buying rate (1.35640) and the selling rate (1.35626).
Types of spread
Retail brokers normally offer two types of spread that are;
- Fixed Spread
- Floating Spread
Let’s discuss each one by one.
What is the fixed spread?
It is a predetermined spread offered by a broker. A detailed list showing the amount of the fixed spread, on various currency pairs, is usually found on the broker’s website. Fixed spread normally ranges from 0.3 to 3 pips on majors and 2 to 50+ pips on crosses.
What is floating spread?
It is a real-time spread offered by the market. Brokers, who gave traders a direct access to the liquidity providers, usually offer the floating spreads. The amount of floating spreads may vary depending upon the situation in the market.
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