Spreads explanation

Hi Guys,

I’m new here and I have a question (Basic probably…), but I need to understand. I want to know when the spread is apply on a trade (when I open the trade?..) and if a variable spread can affect a live position.

(Today, I did a trade USD/TRY to tested the rollover(Swap) and 15 mins before 17h, the spread bounce from 111 points to 600 points and a had the impression than my position drop a lot because of that.)

I’m trading with a Forex.com demo account with MT4 by the way.

Thanks!

Chris

The spread is relevant both when you open and when you close your trade.

For a long trade, you buy to open at the higher price and sell to close at the lower price; for a short trade, you sell to open at the lower price and buy to close at the higher price.

Changes in the spread can’t affect your trade [I]while it’s open[/I], only on opening/closing it.

Those are huge spreads you’re describing. More tradable currency-pairs like the EUR/USD should typically have a spread of about 1 pip, during their regular trading hours.

These and other related questions are all explained in the “School” pages here: School of Pipsology | Learn Forex Trading

Thanks for the explanation, If I understand… When I open a position the negative effect on my position is the spread apply at this time and if the spread going up (1 pip) this is will take effect when I will close my position (Add the difference on my position) and if the spread going down (1 pip) this is subtract the difference on my position.

This is right?

Thanks.

Chris

Take a look @ this, too, to further help illustrate “spread”.

The 10 year is very “liquid”, and thus has a very tight spread.

During periods of increased trading activity, you can see the spread widen out b/c traders are pulling their limit orders (those willing to buy (Bids) and those willing to sell (Offers)) b/c of uncertainty. So, the price for the asset (always quoted as Bid/Ask) can widen based on liquidity and where the next “best” price is on each side of the ladder.

Understand this, and you’re 10 football-field lengths ahead of 90% of other retailers out there.

If I’ve understood you correctly, I think so, yes.

If the spread is one pip wider when you close your position than it was when you opened your position, then on average the whole trade is probably going to cost you something like half a pip more than it normally would, because of the spread change.

What [U]matters[/U] is to trade somewhere where the spread is small and as constant as possible.

Spreads can always change a very little bit, according to market conditions, but those changes should be [I]very small[/I] fractions of one pip, not a [I]whole[/I] pip, unless you’re trading at times when you perhaps shouldn’t be.

I prefer to trade in the Majors as the spreads are the lowest usually when doing trading in the ECN accounts :wink: