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January 16, 2018

Question:What is Spread? Why does it change and they are different in each FX pairs?

Answer:

When you exchange currencies at the exchange rate, you are usually quoted two prices, the Bid and the Ask.

The Ask is the price at which you buy a certain currency and what the market is willing to sell at. Consequently, the Bid is the price at which you sell the currency and what the market is offering to buy it from you.

The difference between the Bid and the Ask prices is the spread.

This difference occurs because the Ask price is always higher than the Bid price.

Imagine you bought a new car for $20,000 and drove it around for a week before deciding to sell it. Logically you would never be able to sell it for the same price or higher.

In this scenario, the difference between the buying and selling price is the spread.

The same principle applies to the markets at the moment you execute.

The actual value of the spread depends on the supply and demand in the market at that moment for the currency in question. The higher the demand, the narrower the spread, and vice versa.

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