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 favour before you break even. It's similar to exchanging currency at an airport; there's always a slight price difference.
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 minimise 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.
Curious how spreads influence your results? Open a free Deriv demo account and practise 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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