Strategies and tips on navigating the forex spread

The information in this site does not contain investment advice or an investment recommendation, or an offer of or solicitation for transaction in any financial instrument. During news events or overnight holds, this can trigger margin calls or premature stops. Major news events are notoriously known to cause market uncertainty. And depending on whether expectations are met or not, these events can cause prices to fluctuate rapidly. High liquidity (or more people trading on a market) usually translates to low volatility as multiple participants ‘balance out’ each other’s trades. FX spreads can vary over the course of the day, ranging between a ‘high spread’ and a ‘low spread’.

High volatility means that prices are fluctuating rapidly, while low volatility means that prices are relatively stable. Forex markets are generally volatile, but there are times when volatility spikes, and spreads widen. This usually happens during news releases, such as employment data, GDP figures, or inflation reports. These announcements can cause sudden price movements, and traders adjust their positions accordingly, causing spreads to widen. It’s preferable to trade when spreads are low, like during major forex sessions.

A liquid market has many buyers and sellers willing to trade at any given time, while an illiquid market has fewer participants. Forex markets are generally liquid, but there are times when liquidity dries up, and spreads widen. This usually happens during major economic announcements or events, such as central bank meetings, political elections, or natural disasters.

Liquidity

• Currently, the best spread one can get is at EUR/USD during the peak daily hours where the London session and New York sessions overlap.
• With an STP Pro trading account, there is no added FOREX.com spread.
• There’s currently an opportunity to trade on the stock exchange with raw spreads.
• If you apply the Instant Execution mode and the spread is fixed, you cannot avoid requotes.

Combined with high why are forex spreads so high right now leverage, this can cause margin calls even on profitable holdings. This happens when the market is showing low liquidity and high volatility. When the market returns to its normal conditions, the spread gets too normal. There are two types of brokers, one who charge fixed spread and the others who charge a variable spread. If the base currency on your trading account is different to the base currency of the pair you’re trading, like GBP, you’d have to convert your money to USD. While spread will depend on the type of the broker (market maker brokers can keep it artificially low), the spread will exist in the real market and it will depend on liquidity.

When spread gains a sudden spike, it can be the result of some important economic news. It can also increase when there is some news about the interest rate. To configure the system during initial handover easily, the banks widen the spread. After recovering the system, the spread gradually goes back to normal. During this hour of spread increase, banks recover enough transactions or credit to hand over small institutions to start trading again.

There’s currently an opportunity to trade on the stock exchange with raw spreads. FOREX.com only charges commissions on a Commission trading account, which allows trading on our tightest spreads, with a $5 commission per 100K traded. Our hi-tech trading platforms consistently deliver fast and accurate pricing, so you can trade with confidence. A pip is the smallest price increment tabulated by currency markets to establish the price of a currency pair.

What moves forex prices?

This information has been prepared by IG, a trading name of IG Markets Limited. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information.

Based simply on chance and the average daily range of the EUR/USD, there is far less than a 1% chance of picking the high and low. Despite what people may think of their trading abilities, even a seasoned day trader won’t fare much better in being able to capture an entire day’s range—and they don’t have to. For day trading spreads, some pairs are better than others, and drawing conclusions on tradeability based on the size of the spread (large vs. small) is not useful. All information on The Forex Geek website is for educational purposes only and is not intended to provide financial advice.

• Your actual trading may result in losses as no trading system is guaranteed.
• A currency pair with high liquidity, such as EUR/USD, will have a lower spread because there are many buyers and sellers in the market.
• As a forex trader, it is important to understand these factors and choose a broker that offers competitive spreads and reliable execution.
• As mentioned, emerging market currency pairs (eg USD/CNH) generally have high spreads compared to major currency pairs (eg GBP/USD).
• The cost you incur in the base currency will depend on the size of your trade and the width of the spread.

Thus, you should stick with the regulated STP or ECN brokers who send your orders to the real market for a small commission and offer realistic spreads. Although forex is essentially a ratio between 2 currencies, it doesn’t have one single price for buying and selling. Swing traders are in the market for days and sometimes weeks, intending to benefit from pattern investing.