Spread Size :Be Nice To Me

What is spread size?

The difference between the bid and the ask. You buy on the ask and sell on the bid. So if you enter a trade you are already losing the amount of the spread. The spread is the brokers’ fee to allow you to trade.

Codemaster is on the right track here but I want to clear something up that I think is a large misconception. Yes the spread is the difference between the bid and the ask. This difference is not just a function of the broker taking a cut out of you to facilitate the transaction but one of market dynamics. So why we have spreads is the difference between the best bid and offers at any one time. The more liquid the market the tighter the spread, basically there are more resting orders all around the markets price ladder. So once you remove all the liquidity at one price level, the next level with resting orders is not far away. This is the fundamental reason why the majors across all brokers will have tightest spreads. Now dealers or market makers are there to make money on the spread. This is a function of thier business but they are only adding to the spread not creating it themselves. Basically the spread might originate in the interbank as .25 pips for fiber. As it goes to 2-tier banks gets increased to .5 and as it goes down the food chain increases as each liquidity provider takes a cut. Ofcourse you the retail trader are the end of the line so you are left holding the bag. But they are only adding onto a spread that is created not creating one. I find this to be one of the most common misconceptions and portrays these brokers/dealers as bad guys when it’s truly a function of market dynamics. Understanding the fundimental workings will help you see why the market does what it does. Now if you can take it to the next level answer this. What would a market do if there was no spread?? If you know what would happen theoretically then you have a real insight into the market structure at work. Trust me it’s very intersting as I use these principles as the foundation of my trading.