The forex market can be very tricky. If you forget to give importance to the minor details, you should not expect any profit from this market. Think like elite traders in Singapore. They always suggest new participants learn the art of trading from a skilled trader. With the help of a mentor, you can expect to learn the important things in the market with a high level of precision. In this article, we will discuss the importance of Forex spreads and how it can affect your trading performance.
What is Forex spread?
Forex spread is the fees charged by the brokerage firm for offering you access to the online trading industry. The difference between the bid and ask price is known as Forex spread. If you look at the skilled trades, it won’t take much time to understand why they care about the spreads. To learn its importance you need to understand the key difference between the dynamic and variable spread.
Fixed vs. variable spread
A fixed spread is often is defined by the constant gap between the bid and ask price. Let’s say you are trading the market with a fixed spread break. The spread is 3 for the EURUSD pair. No matter what, the spread will not be changed. On the contrary, if you trade the market with a variable spread broker, the difference between the bids and ask price will change continuously. For this reason, you need to think smart to trade the major news since the spread widens up in high volatility.
So which spread is better? For the novice trader, it’s better to use the fixed spread broker since they won’t have to think about the spread widening problem. As you gain experience, you need to start using the variable spread since it will cut down your trading cost. So, chose a variable spread Forex trading account as soon as you feel confident with your trading approach.
Determining the lot size
You need to understand spread fees to determine the lot size. Some of the traders often execute a big lot of trades without even analyzing the dynamic spread. Eventually, it becomes hard to cover up the fees. Those who are using the scalping method should be very careful about this approach. If you intend to make consistent profit from this market, make sure you are trading the market in a tight spread environment. Stop making things overly complicated or else it will be hard to make a big profit. Forget the fact, trading is more like dealing with the price movement and the trend. You have to focus on the risk management factors and only then you will be able to make some big profit. Think smart and act rationally so that you can make a big change in your life.
Optimize your trading environment
Unless you are trading the market with a fixed spread broker, you can’t say that they have an optimized trading environment. You should find a unique broker like Saxo or else it won’t be easy to make a consistent profit. Though some of the brokers might give you the promise that they will offer you the best possible trade execution environment. It might be true but the trades will not be executed without any slippage. The brokers will hunt the stop loss. Find a reliable broker so that they don’t manipulate the spread to hunt the stop loss. Though it will be tough for the rookie traders, the professionals can always help you in this regard.
You don’t have to be super smart to understand the market spread. Just read this article again and things will be clear. Unless you are experienced enough to deal with the dynamic market, trade with a fixed spread broker. Once you get skilled, chose the trading account with the variable spread. And always trade the market with a well-regulated broker.