The ‘Bid’ price is the highest price that a bank is willing to pay for security (Bid).
The ‘Ask’ price is the lowest price that a bank is willing to receive for the security (Ask).
The “Spreads” is the difference between the bid and ask prices and this spread indicates the liquidity of the security.
In Foreign exchange trading, the bid price (Bid) is 1.4390, selling price (Ask) is 1.4393, giving us three points spread between the Bid and Ask prices.
If you want to buy in EUR, with an Ask of 1.4393, profit and loss will show as -30USD, i.e.， $30 (3 x $10 = $30) a loss of value. This can be seen as a loss of $30 (position costs).
Spreads can vary widely depending on the market and the security, and the stock exchange broker will charge a transaction fee per trade or spread. With a small spread, your transaction costs are usually fairly minimal, however,as the spread increases, your transaction fees may also increase. This variability in transaction costs mainly affects short-term traders, having little, if any, effect on long-term traders.
ETO Markets uses a floating spread, which means that our trading system finds the smallest differences between the Ask and Bid prices (spread), reducing your transaction costs.
Another phenomenon of trading in a volatile market is “slippage”, which is when the price of entry or exit is different to what you expected. This can occur due to the split second it takes your order to reach the exchange. Slippage cannot be eliminated entirely and some form of slippage is inevitable over time. However, it is simply accepted as a cost of trading in volatile markets.
At ETO Markets, we not only endeavour to narrow the spread, saving your money on transaction costs, but our continued investment in fast transaction speeds also helps to minimise slippage, increasing your profits.