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 stays weak near 1.0700 ahead of key EU inflation, GDP data
EUR/USD is keeping the red near 1.0700, undermined by a broad US Dollar rebound and a mixed market mood early Tuesday. Germany's Retail Sales rebound fail to impress the Euro ahead of key Eurozone inflation and GDP data releases.
GBP/USD remains pressured toward 1.2500 on US Dollar rebound
GBP/USD is extending losses toward 1.2500 in European trading on Tuesday. A cautious risk tone and a decent US Dollar comeback weigh negatively on the pair. The focus now shifts to mid-tier US data amid a data-light UK docket.
Gold struggle with $2,330 extends, as focus shifts to Fed decision
Gold price is looking to build on to the previous downside early Tuesday, as traders continue to take profits off the table in the lead-up to the US Federal Reserve (Fed) interest rate decision due on Wednesday.
BNB price risks a 10% drop as Binance founder and ex-CEO Changpeng Zhao eyes Tuesday sentencing
Binance Coin price is dumping, with the one-day chart showing a defined downtrend. While the broader market continues to bleed, things could get worse for BNB price ahead of Binance executive Changpeng Zhao sentencing on Tuesday, April 30.
Data fuels China optimism
China's factory activity has expanded for a second consecutive month, marking the best streak in over a year and fueling optimism for the sustainability of the world's second-largest economy's recovery.
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