EXPLAINING SPREADS

[ironman2000]

Spreads

It is the difference between BUY and SELL, or BID and ASK. In other words, this is the difference between the market maker's "selling" price (to its clients) and the price the market maker "buys" it from its clients.

If an investor buys a currency and immediately sells it (and thus there is no change in the rate of exchange), the investor will lose money. The reason for this is “the spread”. At any given moment, the amount that will be received in the counter currency when selling a unit of base currency will be lower than the amount of counter currency which is required to purchase a unit of base currency. For instance, the EUR/USD bid/ask currency rates at your bank may be 1.2015/1.3015, representing a spread of 1,000 pips (percentage in points; one pip = 0.0001). Such a rate is much higher than the bid/ask currency rates that online Forex investors commonly encounter, such as 1.2015/1.2020, with a spread of 5 pips. In general, smaller spreads are better for Forex investors since they require a smaller movement in exchange rates in order to profit from a trade.



Need more answers to your questions........fire away



Keith

[Guerreiro]

Just wanted to say thanks for clearing up a lot of the jargon used on every site, but hardly ever explained. Now anyone and everyone can start forex. All because of you

[ironman2000]

Many thanks Guerreiro,

I am here to answer all you questions about Forex trading and to show you and others how it's an area we all can be involved in.

Here is twenty forex trading rules which new and old traders should stick to:


1. Emotional control is at the heart of good trading.

2. Cut losses with the strictest discipline

3. Make good decisions and winning will take care of itself.

4. When you lose, don't lose the lesson!

5. When in doubt, get out.

6. Keep your risk/reward profile in check.

7. Avoid scheduled news.

8. Consider your account size for appropriate trading.

9. Get a charting program that allows you to build watch lists, sort stocks, and draw trend lines.

10. Scale out of winning positions as they work for you.

11. Don't dig yourself into a hole early in the day or in your career.

12. Trade with a blend of anticipation and confirmation.

13. Evaluate your results at least monthly.

14. Finally (perhaps most important), always be patient.

15. Invest on the side that is winning

16. The objective of what we are after is not to buy low and to sell high, but to buy high and to sell higher, or to sell short low and to buy lower.

17. Capital is in two varieties: Mental and Real, and, of the two, the mental capital is the most important.

18. Markets can remain illogical far longer than you or I can remain solvent.

19. To trade/invest successfully, think like a fundamentalist; trade like a technician.

20. Grow Slowly But Strongly "Pip-Machine"

You go by these rules and your well on the way to being a solid trader

Have a great weekend to all

Keith