Basic Forex Spreads

The first thing that you need to understand is what Forex is. It’s the trading between two types of currencies. The two currencies from the pricing of Forex as Currency1/Currency2. When you trade you need to sell one to purchase the other, and to exit the trade the exact opposite must be done. Here is an example: if you think that the Yen (Japanese) will rise in value when compared to US dollar, and you wish to take advantage of the rate of growth, you’ll sell US dollars to purchase Japanese Yen. After that to exit the trade you’ll sell your Yens for US dollars. The purpose of this Forex trade is to get back more US dollars than you sold to obtain the original Yens. For that to have happened the USD/JPY exchange needed to rise.
The issue with trades today is the misleading market that all Forex brokers use. Each broker says he will possess the tightest spread in the industry. The spreads in a Forex market Forex brokers use these same deceiving market; all of them claim to all hold the tightest spreads in the industry. The Forex spot markets are very difficult to understand, however, you have to understand these to make the best Forex trade gains.
If you’re dealing with wide spread margins, you will be paying more and the bidding prices will be held lower, producing a more narrow profit margin. This means you will make less money. Your loss will consequently be the broker’s gain. Your end goal with Forex is to line your pockets – not somebody else’s, thus, making this not the best situation for you to be in with your broker.
You need to take these spreads into consideration when trading, because they will affect the return on your trading strategy. As a Forex trader you have to ask low and bid high, the same as in the stock market if you prefer a better gain. If you need a higher gaining trade you have to wait for a half-pip lower spread. This will help you to experience a much higher gain.
When there are tighter spreads things ought to be better for your profit margins; however, you will not make a profit if you can’t follow through. When there’s a tight spread, and your trades do not go through a few times, this means that your broker is using a few tricks because he sees the tight spreads and wants to wait till there’s a wider spread. Some of the tricks that brokers use are, delayed execution, rejecting trades, slipping, and stop-hunting.
An additional example, some brokers however use varying spreads that are dependent of the market state. When the market is in good shape, the spreads will be tight, however as soon as the market worsens, the spread will begin to widen. Fixed and variable rates both have benefits and drawbacks, but the better one to chose in the end is dependent on your trading style. Either rate you chose depends on your quality of execution.
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