Spread is the price difference between the buy price (Bid) and the sell price (Ask) when performing Forex trading.
For example, if the bid/ask rate in USD/JPY is 101.15/101.20, the spread is 5 cents.
This will be the trading cost that the traders have to bear.
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Forex spread varies depending on the currency pair, and the magnitude of the spread is mainly determined by the trading volume and the method of trading.
Trading volume
Spread is determined according to the number of orders at the time of trade buying and selling for each currency pair by the financial institution that provides rates to Forex companies.
Basically, currency of high trading volume = high liquidity and you can trade at a stable price any time. In such a currency, even if the spread is set to small, there are many people who will trade, so it can be judged that there is no problem even if financial institutions offer small spread. Conversely, if you have a pair of currencies with a few trading volumes, spreads are set widely.
Trading method
Forex is a trade between currencies. For example, if you buy USD/JPY, you will be selling JPY and be buying USD.
Now, if you buy EUR/JPY, you will be selling JPY, be buying USD, then be selling USD and be buying EUR. This is because the market's key currency is against the US dollar and trading through US dollar. Of course, it does not mean this will not change.
The spread is inevitably higher for the latter case when the trade is executed than when it is not.
Spreads are determined mainly from the factors mentioned above.
Of course the spread will change not only in the currency pair but also in the Forex company, and will fluctuate under the same conditions.
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