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Some newcomers to the trading world have wondered what is meant by the term forex spread. Although this term may seem complicated to the layman, it is actually quite simple. But despite its simplicity, it is one of the important elements of forex trading because profits and losses depend on the spreads applied to currency pairs.
The forex spread is the difference between the price of buying a currency pair from the market (the question) and the price of selling the currency pair to the market (the bid). That's why it's usually called the bid/question spread. The ask price is usually higher than the bid price which causes the trader to incur a small loss once the position is opened, the size of which is determined by the spread imposed by the brokerage firm. That is why it is necessary to understand all aspects of the forex spread while looking for brokerage firms that offer the lowest possible spreads.l
This means that you don't actually own the underlying financial asset, you are simply predicting whether prices will go up or down. Let's take investing in stocks for example. You want to buy 10,000 Barclays shares and the value of the share is 280p which means your total investment will cost you £28,000 and that's not counting commissions or fees your broker might charge for your purchase. In return, you will get a share certificate and legal documents that prove your ownership of those shares. In other words, you have something tangible in your hands until you sell it, preferably for profit.
You should take into account the cost of th spread when developing your own forex trading system, bearing in mind that opening a buy position is used at the ask price while opening a sell position is at the bid price. For example, if the trading system requires a Stop Loss order 20 pips away and a Take Profit level 50 pips away, you will have two ways to do thi
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live stream You can add the Take Profit value to the opening level (or deduct it in the case of short positions) and subtract the stop-loss points from the same level (or add them in the case of short positions). In this way, you maintain your profit/loss ratios but at the same time you increase the probability of hitting the stop levels while decreasing the probability of the price reaching the take profit level.s:
This means that you don't actually own the underlying financial asset, you are simply predicting whether prices will go up or down. Let's take investing in stocks for example. You want to buy 10,000 Barclays shares and the value of the share is 280p which means your total investment will cost you £28,000 and that's not counting commissions or fees your broker might charge for your purchase. In return, you will get a share certificate and legal documents that prove your ownership of those shares. In other words, you have something tangible in your hands until you sell it, preferably for profit.