A Forex spread is the difference between the bid price and ask price of a currency pair. The spread is measured in ‘pips’ or ‘points’ and is the primary cost of trading. Popular currency pairs such as the EUR/USD, GBP/USD, AUD/USD and USD/JPY tend to have lower spreads as a result of higher levels of liquidity. Pips Markets Offers Traders among the Lowest Spreads in the Market.
Forex or foreign exchange, is the most widely traded market in the world, boasting a daily turnover of more than $US7 trillion per day. One of the ways you pay for the opportunity to trade in the Forex market is through the broker’s spreads, or the difference between the bid and ask prices, commonly referred to as the bid/ask spread. Consequently, the size of the spread is important: a small spread reduces trading costs and a larger spread increases cost.
Pips Markets works with a diverse liquidity mix. Partnerships with leading banking and non-banking financial institutions are key in consistently delivering tight spreads to our traders, beginning as low as 0.0 pips
Successful traders are always mindful of any changes in the spread, with some traders, specifically shorter-term traders, such as scalpers and day traders, potentially basing trading decisions on such changes.
When the difference between the bid and ask prices is higher than usual, it could either indicate a period of low liquidity or high market volatility. For instance, non-major Forex pairs, often called ‘minor’ or ‘cross’ currency pairs, frequently reflect a higher spread than major pairs due to less liquidity, as minor currency pairs are not as widely traded as major currency pairs.
When the difference between the bid and ask prices is lower than usual, it could indicate high liquidity or a period of low market volatility. During major liquid Forex sessions like London and New York, you often experience lower spreads (particularly across major currency pairs).
It is important to understand the difference between fixed and variable spreads. Fixed spreads remain the same, no matter the market conditions. Variable spreads keep changing based on the supply and demand of the instruments and the overall market volatility. Choosing the optimal spread type is important to keeping trading costs to a minimum. Retail traders who trade less frequently could benefit from fixed spreads, while those who trade frequently during peak market hours (when the spreads are the tightest) might prefer variable spreads. Variable spreads are normally lower than fixed spreads, especially in calmer markets.
Trading with an Pips Markets RAW account opens the door to some of the lowest spreads in the market. Our liquidity is sourced from some of the largest liquidity providers, with no markup applied. This gives us the ability to offer you the tightest spreads, starting as low as 0.0 pips during the most liquid times, something that was previously the domain of hedge funds only.
The spread of a given currency pair reveals information about market conditions such as time, volatility and liquidity. Emerging currency pairs have a greater spread than major currency pairs due to lower levels of liquidity. Interestingly, it is worth pointing out that only 8 major currencies account for approximately 85% of the Forex market turnover.
Currency spreads are quoted in terms of two different prices: bid and ask price. The bid price is the price at which you can sell the base currency, while the ask price is the price at which you can buy the base currency.
As an example, if the bid/ask rate for the GBP/USD is $1.2272/$1.2273, a trader can enter long the pound at the ask price of $1.2273 and short from the bid price of $1.2272. And the difference between these two prices is the bid/ask spread: the Forex spread, which, in this case, would be 1 pip, or 0.0001. As a reminder, this is found by taking the difference between the ask rate and bid rate.
Calculating the total pip value will differ depending on the currency pair, the account currency denomination and the units traded. Let’s assume the account is traded in USD, and the currency pair is EUR/USD (the account currency is the same as the quote currency).
If you are trading a 10,000-unit trade for the EUR/USD (1 Mini-Lot), the pip value, or ‘initial spread cost’, would be 1 USD = (0.0001 * 10,000 units).
If you are trading a Standard Lot (100,000 units of the base currency), your pip value or ‘initial spread cost’, would be 10 USD = (0.0001 * 100,000 units).