If you're stepping into forex trading, you’ll hear the term ‘spread’ a lot. But don’t worry-it’s not as complicated as it sounds! Think of spreads as the small but important price gap that affects your trading costs and profits. Let’s break it down in a way that makes sense.
What are Forex spreads?
A forex spread is simply the difference between two prices:
- Bid price – The price at which you can sell a currency pair.
- Ask price – The price at which you can buy a currency pair.
Example: If EUR/USD is quoted at 1.0850/1.0852, the spread is 0.0002 or 2 pips. That means you need the price to move at least 2 pips in your favor before you break even. It’s like when you exchange currency at an airport—the buying price is always slightly worse than the selling price.
Types of Forex spreads
Forex spreads on Deriv accounts
At Deriv, different account types come with different spread structures. Here’s a quick breakdown:
What affects Forex spreads?
Spreads aren’t set in stone-they change based on a few key factors:
What is slippage?
Slippage happens when your order gets executed at a different price than expected, usually due to market volatility.
How to minimize slippage:
- Trade during peak hours for better liquidity.
- Use limit orders instead of market orders.
- Avoid trading right before or after major news events.
- Stick to major currency pairs with high liquidity.
Practical trading tips
When choosing an account or planning trades, consider:
- Your trading style (scalping, day trading, swing trading).
- Preferred currency pairs.
- Trading hours.
- Risk tolerance.
- Whether you prefer fixed or variable spreads.
Want to test how spreads affect your trades? Open a free Deriv demo account and practice risk-free.
Log in to Deriv Academy using your Deriv account email and password to start learning today.
Quiz
If you’re trading during a major market announcement, what might happen to spreads?
FAQs
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