Hi,
I’m a newbie to this site and was going through the lessons in preschool. I wasn’t able to follow what the below statement means. Would appreciate if someone could explain what this means. I haven’t come across the term “spread” in any of the previous lessons.
[I]“It isn’t unusual to see spreads that are two or three times bigger than that of EUR/USD or USD/JPY. So if you want to trade exotics currency pairs, remember to factor this in your decision.”[/I]
Thanks
“Spread” refers to the difference in pips (or fractions of pips) between the bid price and the ask price.
If you trade EUR/USD it’s normal to see a spread of one pip, or sometimes a little less. So the price you see will be something like “1.1227-1.1228”. That means if you’re buying, you pay 1.1228 and if you’re selling, you receive 1.1227. The difference is 1 pip.
The lesson is warning you that if you trade more obscure currencies (such as the Singapore Dollar or Norwegain Krone) the spread will typically be wider than that, which in turn means that when you open a trade, you need it to move a little bit more in your favour (than is the case for a EUR/USD trade) before you’ve covered the dealing costs of your transactions.
And welcome to the forum.
Thank you very much for explaining it.
I have a better understanding of spread now 