Hi. Im new and wanted to know how spreads are calculated, how and when they are charged, and what happens if we trade and is profitable but not enough to cover the brokers fee? Thanks in advance
the spreads are instantly charged when you place a trade, thats why you always go into negative when you place a trade, unless you hit a hard rise or fall quickly. Your profit is your profit then when you close the trade. if you have an ecn account this is different as you get charged a comission per trade
The spread is decided by each broker. Spreads are not the same with all brokers, some are wide (expensive, others narrow (cheaper). Spreads often get wider when there is a news announcement expected or just made, or when volume is low, or when extra price volatility is expected such as when the underlying market is about to open/close. Spreads are not fixed fees.
The spread is the difference between the bid and ask prices. If you are buying you must pay the ask, as this is higher than the bid. If you are selling you will receive the ask. The difference is profit to the broker.
Note that most charts show the bid price, so this does not accurately reflect the ask price at which you could have bought. some sources and some charts quote the mid-price, which is the mathematical average between the bid and ask: this isn’t very helpful, as no trades are offered at the mid-price but the chart will look slightly different on very short time-frames if its a mid-price chart.
If you buy at ask price 1.2255 and the bid quoted is 1.2250, you will not break even until the bid price rises to 1.2255. You will only make a profit if the bid price rises to at least 1.2256, when you would make a profit of 1 pip. If you buy at 1.2255 and close the position at an ask price of 1.2254 you will lose 1 pip.
Thanks for your reply. So I was wondering if they charged you when you place a trade, where do they actually take their fee from ? Like from our deposit or?
Thank you for the detailed explanation. I highly appreciate it