What is Spread and How Does It Work?

In forex trading, currency pairs are quoted against each other. The bid is the price for which you can sell the base currency. The ask is the price for which you can buy the base currency. The difference between these two is called the spread. The spread is one of the key costs involved in trading; the tighter the spread is, the better value you're getting as a trader. There are other potential costs to consider; for example, in trading, some account types involve a commission charge or a combination of spread and commission.

Spreads can be affected by a variety of factors, including but not limited to market volatility, available liquidity, trading session, and order size:

1. Depth of the market, liquidity: This refers to liquidity, how easily an asset can be bought or sold. As the depth of a market increases, the spread usually tightens
2. Market participants, volume: Assets with a higher trading volume or participants generally have narrower spreads.
3. Volatility: Volatility measures the amount by which price fluctuates over a given period. In trading, volatility measures how large the upswings and downswings are for a particular asset. When an asset's price fluctuates wildly up and down, it is said to have high volatility. When an asset does not fluctuate as much, it means that it has low volatility. Since assets are affected by so many political, economic, and social events, many occurrences cause prices to become volatile.

Simple, Fresh, Fair: FairMarkets

As FairMarkets, we offer our investors two different account types, Aussie Premium, and Standard Account, with variable spread. This gives traders flexibility in choosing the type of account that suits their strategy. You can choose between them depending on your preference for commissions and spreads. Aussie Premium spreads start from 0.0, and standard spreads start from 0.6 pip. Although Aussie Premium charges a $1 commission with spreads starting from 0.0 pips, it offers FX pairs of AUD crosses, brent, and oil, gold, and silver contracts. ASX 200 index, with tight spreads and zero commission, is designed for Australians who mostly trade these products, do business across countries, and have close connections with oil, mining, tourism, manufacturing, and services industries. On the other hand, Standard account may be a better start for new traders, with spreads starting from 0.6 pips with no commission.