What Characterizes the Spread in Forex?

Characterizes the Spread in Forex

The spread is one of those technical terms in the world of trading that serve to understand in a faster and more unequivocal way certain concepts that are fundamental when making investments safely and correctly.

On the other hand, in the framework of trading, the use of this word can occur in markets as diverse as the stock market, CFDs and Forex. One of the keys to operating with solvency is to study the characteristics and movements of each of them.

For this reason, we defend that it is necessary to train, for example, through our Forex trading course. In this sense, knowing the vocabulary of its operations is essential to carry them out without inconvenience.

For our part, we inform you that the word that stars in this text refers to the difference between the price at which you buy a security and at which you sell it. Likewise, the definition coincides with that relating to the difference found between the amount of supply (ASK) and that of demand (BID).

On the other hand, you should know that this indicator depends on the price that each broker will charge you for the commission related to each operation in which it participates. And remember that you need their contest to carry them out.

What factors influence the spread?

On the other hand, it is an indicator that will vary depending on certain circumstances. Below we review with you the ones that influence you the most. Take note of them.

Liquidity

Spreads get smaller the more participants (buyers and sellers) make use of the underlying assets. For example, one characterized by these narrow margins is the one associated with the pair made up of the euro and the dollar. The spread, meanwhile, can increase when investors stop using one of these assets.

Volatility

It has to do with the variability that prices experience when there are macroeconomic events of some relevance, such as the decisions of the United States Federal Reserve or the European Central Bank. The communications of these institutions cause immediate effects on prices, so that those who have inside information have the advantage of being able to cushion the risks.

Schedule

Finally, this data linked to liquidity also influences. Beyond the normal hours of market activity, price fluctuations increase.

Classes of spreads in Forex

Finally, we must point out that, based on the conditions of the specific negotiations and the investment styles of the traders, certain amounts are established for the commissions that you must pay in carrying out each operation. Pay attention.

Fixed

Fixed spreads are characterized by the collection by brokers of the same amount as commission on all orders. As it will not change even in the different markets in which it operates, it offers certain stability to investors.

But, in addition to the above advantages, there are some drawbacks associated with fixed spreads. As they are higher than the variables, they should not be maintained in contexts of low volume or high volatility.

Variables

Regarding variable spreads, they are characterized by greater volatility, since they fluctuate on the same day. When the market is in favor, these spreads are smaller than the fixed ones. But when some major macroeconomic news is announced, they can quadruple or quintuple.

In short, if you are starting out, opt for a low spread (for example, in intraday trading and scalping), as it gives you profitability and avoids risks more typical of experienced investors.