Im really confused about forex, I’ve been trading demo accounts for some time, and Im really starting to understand and “get” scalping. But one thing that has passed me by before (I did not use chart before), was that when I open a trade the trade cost often 20-30 pips more then the chart value. And as a consequense of this the trade goes in minus as soon as you buy it and you have to really wait untill the trade goes a lot up before it goes into plus.
I use a leverage of 100:1, does this have anything to do with it?
This is a picture trying to illustrate the problem, why is that green buy line much higher then the actual price?
You are reading your quotes wrong. You say you have been doing this awhile? I would suggest you contiue a bit more study. the spread is 3 pips, not 30…
I have one question. Could you help me please? (I’m still on demo account):
For example EUR/AUD and I saw that there has not been any activity (somehow the 1m chart stood still for ages) and I decided to close my position. I expected several pips loss, however the demo took me many pips. Even from the charts (when I enable “Show trading history”) there has been dotted line which was low below the candle stick (not like the usual spread), but really big difference. This has not happened because of the market, as there has not been big moves.
Thank you!
When you buy, you do so at the offer. When you sell, you do that at the bid. That means when you enter a long (buy at the offer) you are immediately in a negative position because you can only sell at the bid, which is lower. And vice versa for entering a short.
As for there being a difference with what your chart shows, that’s because you’re chart isn’t showing the price at which you’re trading. It might be the mid rate or the bid rate. Check your settings and/or broker documentation.
Notice how there is a small difference in the Buy price compared to the Sell price. The difference in this price is called the “spread.” This is the price (no matter what) that you will pay to your broker for making the transaction for you.
So now how this impacts your P/L. Either way, you owe your broker the charge for making the transaction. The broker can apply this debt immediately to your profits/loss, or they can take it out of your account after the trade is fully closed. Most brokers display you at a loss immediately so that you know what you need to get to profit-wise in order to actually make a profit. Otherwise you’d take a $15 profit while forgetting the $30 charge.
Some currencies require a larger “spread” (transaction fee) due to volatility and other factors. The spreads for the most common currencies will generally be the lowest (eur/usd, usd/jpy, etc).
Overall, just view the “spread” as a transaction fee that you have to pay for and you’ll understand it more fully.
Thank you very much rhodytrader and TradePlayer! I’ll check the broker’s documentation and I’ll be very careful about the asked price and the bid.
When I was closing the transaction I really did not pay any attention to the bid price.
Thank you!
o