The spread is the difference between the bid and ask prices of financial instruments.
A fixed spread remains the same regardless of the market.
This type of spread is usually offered by fixed commission brokers and can be useful for market participants who prefer predictability and stability.
A floating spread changes depending on market conditions such as liquidity and volatility.
Spreads can be very narrow during calm market periods and widen during periods of high activity.
The higher the market liquidity, the narrower the spread.
In liquid markets, such as major currency pairs on Forex or large stocks, spreads are usually minimal.
In Forex, for example, spreads can vary depending on the trading session.
During the Asian session, when liquidity is lower, spreads may be wider than during the European or American sessions.
Different brokers may offer different spreads depending on their business model and trading conditions.
Some brokers may offer fixed spreads, others may offer floating spreads, and still others may combine both approaches.
Many offer commission-free trading, relying solely on spreads to generate revenue.
It is important to consider the spread amount when developing trading strategies.
For example, narrow spreads are especially important for scalpers who make many trades throughout the day.
The spread is an important aspect of trading in the financial markets that directly affects costs and profitability.
Understanding the different types of spreads, the factors that influence their magnitude, and being able to factor the spread into your trading strategies will help you manage your trading costs more effectively and make informed decisions.
Knowing about spreads and being able to put this information into practice are key skills for successful trading.