Spread
What is a Spread in Trading?
A spread in trading is the difference between the Bid price and the Ask price of an asset. For example, if EURUSD shows:
Bid price: 1.10201 Ask price: 1.10191 The spread is 0.00010.
In simple terms, the spread is the “gap” between what you pay to buy and what you receive if you sell immediately.
Why Spreads Matter
The spread in trading is important because it tells you the cost of entering a trade. A lower spread means it’s cheaper to trade, while a higher spread means it’s more expensive.
When you open a position, you’ll notice you start with a tiny loss; that’s the spread. Once the market moves in your favor, you can overcome this cost and start seeing profit.
Types of Spreads
- Fixed spreads: These stay the same, even if the market is very busy.
- Variable spreads: These can change depending on market conditions, such as big news or heavy trading times.
Both are common in trading, and each has its advantages.
Other Glossary Terms
S
- Stop Loss
A stop loss is a preset order that automatically closes your trade when the price moves against you, helping limit losses and protect your account through effective risk management.
- Stop Loss Limit
A stop-loss limit is an order that triggers a limit order once a set stop price is reached, letting traders control losses but not guaranteeing execution beyond the limit.
- Support Level
A support level is a price zone on a chart where a downtrend tends to pause or reverse as buying pressure increases, acting like a floor where traders expect prices to bounce.
- Swap
A swap, or rollover, is the credit or fee applied to a CFD position held overnight, reflecting interest-rate differences, financing costs, and broker adjustments.
- Scalping
Scalping is a high-speed trading style where traders aim to capture small, frequent price movements within seconds or minutes, executing multiple quick trades for tiny, consistent gains.
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