Ask & Bid: Knowing the Spread

spread

One of the most frustrating things for new traders is overcoming the spread. The spread is the difference between the bid price and the ask price at a given time. You should always consider the spread before you enter a position, as the move you’re anticipating may not be significant enough for you to turn a profit.

This difference in price can dishearten some traders. When they’ve gone into a position on a currency with a wide spread, they’re starting off in the hole, and the price has to climb that much further before they make a profit. A tighter spread, however, means you can turn a profit that much faster, as the moves don’t have to be as big.

Spreads are directly tied to volume. When there’s less volume in the markets, spreads will be larger; when there is more volume, spreads will be tighter. Volume trends aren’t a secret by any means, and you can use this knowledge to your advantage. The markets see the most volume between 8am and 12pm EST. Around 5pm EST, the markets see the lowest volume of the day.

It’s also worth noting that certain brokers offer a fixed spread while others offer a variable spread. Variable spreads bring the potential both for tighter spreads during periods of high volume in the markets, as well as wider spreads when the market is seeing low volume. Though fixed spreads are generally wider than variable, they bring predictability during periods of market volatility.

We know—it’s just another thing you need to think about before you get into a trade. But as you take these things into consideration, you’ll start to just see these things without thinking about them! But for now just remember:

Less Volume = Wider Spread
More Volume = Tighter Spread

As a side note, we at the Apiary Fund have done everything we can to make our narrow spread work for our traders. If you’re not a part of the fund currently, check out our Trader Orientation Webinar to find out more about the unique advantages provided by the Apiary Fund.

 

About Tom

Tom Lund is the Content Manager at Apiary Fund where he began his career in 2012. He creates and edits the educational material that Apiary Fund uses to train new foreign exchange traders. Lund researches and writes the investing news and tips for the Apiary Fund blog and website. He graduated from Brigham Young University-Idaho with a bachelor’s degree in English.

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