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 hits two-day highs near 1.1820
EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.
GBP/USD reclaims 1.3600 and above
GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.
USD/JPY drops back below 157.00, as focus shifts to Japan snap election
USD/JPY is back in the red below 157.00 in the Asian session on Friday. The Japanese Yen recovers ground against the US Dollar amid some profit-taking ahead of Japan's snap general election on Sunday. The preliminary reading of the Michigan Consumer Sentiment Index report for February will be released later on Friday.
Editors’ Picks
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates Premium
The EUR/USD pair lost additional ground in the first week of February, settling at around 1.1820. The reversal lost momentum after the pair peaked at 1.2082 in January, its highest since mid-2021.
Gold: Volatility persists in commodity space Premium
After losing more than 8% to end the previous week, Gold (XAU/USD) remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000.
GBP/USD: Pound Sterling tests key support ahead of a big week Premium
The Pound Sterling (GBP) changed course against the US Dollar (USD), with GBP/USD giving up nearly 200 pips in a dramatic correction.
Bitcoin: The worst may be behind us
Bitcoin (BTC) price recovers slightly, trading at $65,000 at the time of writing on Friday, after reaching a low of $60,000 during the early Asian trading session. The Crypto King remained under pressure so far this week, posting three consecutive weeks of losses exceeding 30%.
Three scenarios for Japanese Yen ahead of snap election Premium
The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.
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