What is Spread in Forex

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WHAT IS SPREAD IN FOREX?
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What Is Spread?
The foreign exchange spread (or bid-ask spread)
refers to the difference in the bid and ask
prices for a given currency. The bid price
refers to the maximum amount that a foreign
exchange trader is willing to pay to buy a
certain currency, and the ask price is
the minimum price that the currency dealer is
willing to accept for the currency.
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Bid-Ask Spread Defined
The Forex spread represents two prices The
Buying (Bid) Price for a given currency pair, and
The Selling (Ask) Price. Traders pay a certain
price to buy the currency and have to sell it for
less if they want to sell back it right away.
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How to manage spread
Trade only during the most favourable trading
hours, when many buyers and sellers are in the
market. As the number of buyers and sellers for a
given currency pair increases, competition and
demand for the business increases and market
makers often narrow their spreads to capture it.
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How to manage spread
Avoid buying or selling thinly traded
currencies. Multiple market makers compete for
business when you trade popular currencies, such
as the GBP/USD pair. If you trade a thinly traded
currency pair, there may be only a few market
makers to accept the trade. Reflecting the
lessened competition they will maintain a wider
spread.
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How to manage spread
Economic/Political risks Nations that
experience tumultuous political climates or
unstable economies will typically have their
currencies associated with high risk. As a
result of this, the bid-ask spread will become
larger. It is because dealers will perceive the
currency as a high-risk investment, and thus will
have no choice but to sell the currency at a
premium in anticipation of higher investor
returns.
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