The Spread is the difference between a financial asset’s Buy price (ASK) and the Sell price (BID) and is a crucial factor when accessing the market. We can also define the Spread as the opportunity cost of access since the higher the spread, the higher the cost, and therefore, we will obtain a lower profit in our operation.
For this reason, many people focus on the Spreads offered by the Broker as an essential part of the costs when trading.
There are 2 types of Spread:
Fixed Spread: Typical of Brokers' Market Makers,
Floating Spread: Typical of Market Execution Brokers.
Within the floating Spread, we can define the Spread as:
Minimum Spread: the smallest value of the floating Spread, expressed in Pips,
Typical Spread: the typical value of the floating Spread under normal market conditions.
What factors affect the Spread?
Generally, the spread of each instrument is influenced by market conditions (liquidity and volatility). Therefore, this cost will be higher when market conditions are unfavourable:
Liquidity: The higher the liquidity, the lower the Spread,
Volatility: The higher the volatility, the higher the Spread.
Therefore, during the news release with more impact on the market, the Spread will be affected.
If you have any questions, do not hesitate to contact us.
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