Bid-Ask Spread

A full quotation is made up of 2 prices called the Bid and the Ask. The difference between these two prices is referred to as the 'Spread'.

The spread is essentially the profit a broker or bank makes for you to enter the trade (your transactional cost). The wider the spread the more expensive it is for you to trade, whereas the thinner the spread the cheaper it is to enter the trade.

Large and frequently traded currencies usually enjoy a small bid-ask spread while small and infrequently used currencies have a large bid-ask spread.

The spread becomes more important to traders who trade frequently (such as an intraday trader or a scalper). However the spread is less of an important the higher the timeframe you trade one.
 

Bid and Ask Spreads


Here you can see the bid-ask spread when you open a deal ticket within MT4. You wish to go long (buy) EURUSD and open an order window
 

LONG POSITIONS
  • The quotation reads: 1.36298 / 1.36301
  • If you buy you will enter the market at 1.36301
 

SHORT POSITIONS
  • The quotation reads: 1.36298 / 1.36301
  • If you sell you will enter the market at 1.36298
 


In both circumstances your entry price on your P/L (profit loss) will be negative as the spread has been attached to your order. The market will have to move in your favour by the distance of the spread in order for your P/L to become zero.
 

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