Spread is the difference between the buying price and selling price, the bid and offer (ask) prices. It is used to measure market liquidity. Every market has a spread, thus Forex does.
Narrower spreads usually signify high quality. It is also the commission which you pay, as currency traders.
For example: You want to convert USD to Euros at the bank. They will tell you that the buying price is 1.56 and that the selling price is 1.49. In other words, in order to buy one Euro you should pay a little more than one and a half USD. If in that very moment you want to sell your one Euro, then the bank will buy one Euro at a price slightly lower than one and a half USD, so if you sold 1000 USD to the bank you received 641 Euros. By selling the Euros back you will get only 955 USD.
You paid 1000 USD and received 955 USD, so where are the other 45 USD?
This is the profit of the GHANGE store – this is the commission the bank charges for their customers.
This is the only commission that you’ll pay; in the Forex market there are no additional commissions.
How to calculate spread in forex?
Forex quotes are always provided with bid and ask prices. The bid is the price at which the forex market maker is willing to buy/sell the base currency in exchange for the counter currency. If bid price is 1.18645 and ask price is 1.18646 then the spread is 0.1.
It is important to bear in mind that spreads change from time to time. Liquidity is one of the factors, which depends on market conditions and economic data. However, if you want to stay always informed about the spread rates, refer to your trading platform.
Why don’t you take a look at LQDFX typical spreads?
Sources: LQDFX, Investopedia
PLEASE NOTE The information above is not investment advice.