In ForexSQ we’re going to introduce you to the spread betting functioning. “Spread” is the difference between the bid and ask price of a security or an asset. Bid-ask spread, which might be referred as bid-offer spread or buy-sell, shows the difference of those prices when an immediate order (ask) or an immediate sale (bid) is placed on the market. In foreign exchange market (Forex) relative value is given as a single price to eliminate any potential issues that might be caused by buying of a security and not being able to sell it or vice versa.
Most brokerage firms offer what’s called a “dynamic spread” to their clients. Dynamic spread moves depending on the trade volume or the volatility of the market. Whenever there is an important event like last Friday’s NFP, spreads go up as more people try to get in the market to take advantage of big fluctuations. Thus, the spread can be a good indicator of market volatility and volume.
Some traders may prefer fixed spread over dynamic. Usually, it’s easier for new traders to calculate the risk/reward ratio when spreads are fixed. Moreover, hedging positions using correlations of pairs is done more comfortably using fixed spreads. If for instance trader has a EUR/USD sell position as the pair is going up (due to USD losing value) he/she might hedge that position by going into a long position on a pair like AUD/USD or NZD/USD which offers more profit/loss per pip movement when compared to EUR/USD.
On the other hand, dynamic spreads are preferable for experienced traders. Before big potential moves on the market, prices are generally fairly calm and spreads get even close to zero. Taking positions before that event takes place requires analyzing the market thoroughly. However taking the right position and sticking with it brings more profit since spreads are really low before fluctuations.
As prices start to move wildly it’s going to be more expensive to catch that movement for a trader because of the spreads widening.
Spread betting offers flexibility for an investor since you don’t need to own any type of currency or commodity or stock to bet on the price movement. Initial investment can be in different currencies and profits/losses are calculated to according to that currency. Using leverages for spread betting increases market exposure thus creating a high risk/return environment and before starting spread betting an investor should understand the risks involved with it to make more educated decisions.
Risk Disclosure Analyzing your financial situation, you should decide whether you should start Forex trading or not. Rates of currencies can go down or rise higher any day, any hour, any minute so you should risk only that much which you can afford to loose.
Editors’ Picks
EUR/USD flirts with daily highs, retargets 1.1900
EUR/USD regains upside traction, returning to the 1.1880 zone and refocusing its attention to the key 1.1900 barrier. The pair’s slight gains comes against the backdrop of a humble decline in the US Dollar as investors continue to assess the latest US CPI readings and the potential Fed’s rate path.
GBP/USD remains well bid around 1.3650
GBP/USD maintains its upside momentum in place, hovering around daily highs near 1.3650 and setting aside part of the recent three-day drop. Cable’s improved sentiment comes on the back of the Greenback’s irresolute price action, while recent hawkish comments from the BoE’s Pill also collaborate with the uptick.
USD/JPY edges up above 153.50 with all eyes on US CPI figures
USD/JPY appreciates above 153.00 but remains on track for a 2.4% weekly loss. Trading volumes remain subdued on Friday, ahead of the IS CPI release. The Yen remains supported by hopes of a stable government and calls for further BoJ tightening.
Editors’ Picks
EUR/USD: Yes, the US economy is resilient – No, that won’t save the US Dollar Premium
Some impressive US data should have resulted in a much stronger USD. Well, it didn’t happen. The EUR/USD pair closed a third consecutive week little changed, a handful of pips above the 1.1800 mark.
Gold: Metals remain vulnerable to broad market mood Premium
Gold (XAU/USD) started the week on a bullish note and climbed above $5,000 before declining sharply and erasing its weekly gains on Thursday, only to recover heading into the weekend.
GBP/USD: Pound Sterling remains below 1.3700 ahead of UK inflation test Premium
The Pound Sterling (GBP) failed to resist at higher levels against the US Dollar (USD), but buyers held their ground amid a US data-busy blockbuster week.
Bitcoin: BTC bears aren’t done yet
Bitcoin (BTC) price slips below $67,000 at the time of writing on Friday, remaining under pressure and extending losses of nearly 5% so far this week.
US Dollar: Big in Japan Premium
The US Dollar (USD) resumed its yearly downtrend this week, slipping back to two-week troughs just to bounce back a tad in the second half of the week.
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