Sorry for the NEWB question but why is the spread on GBPNZD 22 pips! I noticed a setup and opened the trade but BAM!
Yes it is my fault and chalk it up to me paying for my education but I am still curious why the spread is so large.
Thank you in advance,
Bill
Hey BillMoney…my man rhodytrader explains what a spread is in this post and why it may be as wide/narrow as it is. In the case of GBP/NZD, it’s not as liquid a market as the majors (e.g., EUR/USD, USD/JPY, GBP/USD, etc.) so a broker can’t tighten it any further because they are not getting the orders to do so from market participants. For example, the best ‘bid’ order in their system is probably at 1.9680, while the best ‘offer’ from market participants is 1.9700. This is a very generic example of how the spreads work, but I think it paints the picture correctly. I hope that makes sense.
Pipcrawler, Thank you for your response. I was aware of the thin markets causing larger spreads BUT 22 pips! It really surprised me. The good thing is I still took 20 pips out of that trade so it’s all good but it still is a valuable lesson. I need to look at the spread before placing an order. Yes this might be simple but I never thought the spreads would get this wide.
GBP/NZD during the recent days had a descending trend that could record the bottom price of 1.96181. as it is obvious in the picture below, the price by reaching to the long term ascending trend line ( made of 4 bottom prices)has been stopped and the sellers were unable to pass this support line.
According to the formed price movements in the chart, there is a Gartley harmonic pattern between the bottom price of 1.96181 and top price of 2.10508 that warns about ascending of the price with completion of this pattern ending point. Stoch indicator is in saturation sell area in daily time frame that confirms the harmonic D point and warns about changing price direction during the next candles. Generally according to the formed signs in price chart, until the bottom price of 1.96181 is preserved, there is a potential for reformation and ascending of the price in this currency pair.
Technical Analysis of GBP/NZD Dates 2014.11.19
GBP/NZD Technical Analysis
As Pipcrawler mentioned it is due to the liquidity. The less liquid a currency pair the higehr the spreads and the more access your forex broker has to liquidity the lower the spreads will be (if you are trading with an honest broker). You can compare the spreads of different brokers for the same currency pair and often can see big differences. That is due to the mark-up of the raw spread by your broker.
During an economic announcement or the opening of the market on Sunday night the spread could widen. However, if you placed the trade in neither of these times you are being ripped off by your broker, literally. The heavy mark-up is placed as it is very volatile and can easily gains +50 pips in several minutes. As a precaution (market maker), a high mark-up is placed. This is liquidity is an excuse for such high spreads. Check out other brokers (I am not recommending here) and compare their spreads. Make sure they are regulated by CySec or FSA.