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The ask price is always higher than the bid price. With this leverage you can take a position with times larger value, resulting in times bigger profits or losses, therefore great care is required when placing your trade.
Equities on the other hand are traded without leverage. Then pick a currency pair e. Now you are a trader in a market used by millions of people all around the globe. Check out your current profit or loss in the Open positions window.
You can keep this position as long as you like. And when you no longer wish to keep your position, just close your trade by pressing the X button in the Open Positions window. This is called long position. Next factor is amount of a deal. Middle size spot deals are executed on quotations with standard tight spreads; extreme deals — both too small and too big — are quoted with broader spreads due to risks involved. On volatile market bid-offer spreads are wider than during quiet market conditions.
Status of a customer also impact spread as large scale traders or premium clients enjoy personal discounts. Nowadays Forex market characterizes high competition and as brokers are trying to stay closer to customers, spreads tends to be fixed on lowest possible level. Each trader should pay sufficient attention to spread management.
Maximum performance can only be achieved when maximum quantity of market conditions is taken into account. Successful trading strategy is based on effective evaluation of market indicators and specific financial conditions of a deal. Because spreads are subject to change, spread management strategy should also be flexible enough to adjust to market movement.
As a newcomer to the Forex market, there are several terms used that you may require a definition for. Both these terms are also a very important attribute of the Forex market as both represent the value of a currency pair to the trader and the broker. In the Forex market, the value of a currency is presented in pips. It represents brokerage service costs and replaces transactions fees.
Spread is traditionally denoted in pips — a percentage in point, meaning fourth decimal place in currency quotation. Following types of spreads are used in Forex Trading. Fixed spreads are set by dealing companies for automatically traded accounts.
Fixed spread with an extension — certain part of a spread is predetermined and another part may be adjusted by a dealer according to market. Variable spread — fluctuates in correlation with market conditions. Generally variable spread is low during times of market inactivity approximately pips , but during volatile market can actually widen to as much as pips.
This type of spread is closer to real market but brings higher uncertainty to trade and makes creation of effective strategy more difficult.
Observing variable spread graph trader could define moments when value of the spread reaches its extremes — either maximum or minimum. On the moment of minimal spread between 0 to 1 pips he or she can open simultaneously buy and sell positions and later close both of them on the moment of maximal spread.
As a result profit will equal to maximal spread value. This trading strategy under variable spread conditions has an advantages of low risks involved, because profit probability does not depends in this case on actual currency pair quotation but only on spread value.