On volatile market bid-offer spreads are wider than during quiet market conditions. Status of a customer also impact spread as large scale traders or premium clients enjoy personal discounts. Nowadays Forex market characterizes high competition and as brokers are trying to stay closer to customers, spreads tends to be fixed on lowest possible level.
Each trader should pay sufficient attention to spread management. Maximum performance can only be achieved when maximum quantity of market conditions is taken into account. Successful trading strategy is based on effective evaluation of market indicators and specific financial conditions of a deal.
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Because spreads are subject to change, spread management strategy should also be flexible enough to adjust to market movement. As a newcomer to the Forex market, there are several terms used that you may require a definition for. Both these terms are also a very important attribute of the Forex market as both represent the value of a currency pair to the trader and the broker.
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In one of the most common definitions, the spread is the gap between the bid and the ask prices of a security or asset, like a stock, bond or commodity. This is known as a bid-ask spread.
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This is officially known as a spread trade. In underwriting , the spread can mean the difference between the amount paid to the issuer of a security and the price paid by the investor for that security—that is, the cost an underwriter pays to buy an issue, compared to the price at which the underwriter sells it to the public. In lending, the spread can also refer to the price a borrower pays above a benchmark yield to get a loan. The bid-ask spread is also known as the bid-offer spread and buy-sell. This sort of asset spread is influenced by a number of factors:.
For securities like futures contracts , options, currency pairs and stocks, the bid-offer spread is the difference between the prices given for an immediate order — the ask — and an immediate sale — the bid. For a stock option , the spread would be the difference between the strike price and the market value. One of the uses of the bid-ask spread is to measure the liquidity of the market and the size of the transaction cost of the stock.
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For example, on Jan. This indicates that Alphabet is a highly liquid stock, with considerable trading volume. The spread trade is also called the relative value trade. Spread trades are the act of purchasing one security and selling another related security as a unit. Usually, spread trades are done with options or futures contracts. These trades are executed to produce an overall net trade with a positive value called the spread.
Definition from Wiktionary, the free dictionary. English Wikipedia has articles on: spread. He spread his newspaper on the table.
I spread my arms wide and welcomed him home. I spread the rice grains evenly over the floor. Modern society may not have done anything about war. But peace is a lot more peaceful.