Forex Trading – A Guide To Pips And Spread In Online Forex Trading

If you’re new to forex trading, one of the first things you need to learn about is the spread and pips. Every currency in forex is traded against another currency, which is called a currency pair. For instance, one of the most traded contracts globally with high daily trading volume is EUR/USD.

However, before you start trading, it’s essential to have a strong understanding of spread and pip values. So, what is the spread? The spread is the difference between the buying and the selling price of currency pairs. If you want to buy the Euro against the Dollar, your trading platform may display a current price of 1.5000 x 1.5003, which means there’s a three-pip spread.

For instance, if you decide to buy the Euro at 1.5003, you can only sell it at 1.5000 for the time being. As currency pair prices are continuously changing, the spread can increase or decrease, with more significant market activity, for instance. The person who earns the spread is your broker, who may increase it when they face greater risks and reduce it when the risk for the broker is lower.

While you have no choice but to pay the spread, some brokers promise zero spread trading. However, this is often not possible, as the broker determines the pricing and can manipulate the price away from the market spread. Would you still pay for it, one way or another?

GBP/USD, USD/JPY, and CHF/USD are other common forex pairs you may come across. Note, however, that only major currencies offer enough volume and volatility for day trades.

Written by Nelson Woolwine

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