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• August 12, 2009 at 9:10 am #618273
  Freerolls.bz

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  Spreads
  It is the difference between BUY and SELL, or BID and ASK. In other words, this is the difference between the market maker’s “selling” price (to its clients) and the price the market maker “buys” it from its clients.
  If an investor buys a currency and immediately sells it (and thus there is no change in the rate of exchange), the investor will lose money. The reason for this is “the spread”. At any given moment, the amount that will be received in the counter currency when selling a unit of base currency will be lower than the amount of counter currency which is required to purchase a unit of base currency. For instance, the EUR/USD bid/ask currency rates at your bank may be 1.2015/1.3015, representing a spread of 1,000 pips (percentage in points; one pip = 0.0001). Such a rate is much higher than the bid/ask currency rates that online Forex investors commonly encounter, such as 1.2015/1.2020, with a spread of 5 pips. In general, smaller spreads are better for Forex investors since they require a smaller movement in exchange rates in order to profit from a trade.

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  Keith
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