Let's take a look at how Spread is generated by Forex brokers.
A thread ๐งต
A thread ๐งต
Before diving into what spread entails in Forex trading, let's talk about Bid and Ask Price.
Let's say you go to a store right now and you wanna purchase a shirt you love and the seller tells you that the cost is $50. Here, you are and the maximum price you're willing to pay is $45. $45 is the Bid price in question.
Bid price is basically the price at which a buyer is willing to purchase an asset. So if I wanna get a new shoe right now, and I'm told the price is $150 but I'm only willing to pay $140, that's my Bid price.
Ask Price on the other hand, is the least price a seller is ready to give out a product. Now, I'm ready to pay $140 for the shoe but the seller is like, "no sir, I can only give you for $145". $145 is the Ask Price; the price the seller is willing to sell.
Now, the difference between Ask and Bid Price is what we call Spread. Recall, in Math, difference implies "subtraction". So let's do a little bit of Math right now.
Let's say I wanna get a bag that cost $35 but I'm only willing to pay $30 (Bid Price) and...
Let's say I wanna get a bag that cost $35 but I'm only willing to pay $30 (Bid Price) and...
The seller says the least price he's gonna give me is $32 (Ask Price).
Now recall, Spread is the difference between Ask Price and Bid Price.
So,
Spread = $32 - $30
= $2
Simple! The spread is $2
Now recall, Spread is the difference between Ask Price and Bid Price.
So,
Spread = $32 - $30
= $2
Simple! The spread is $2
So how do brokers generate spread? They only follow this simple math I explained.
Well, that's all for now. I believe you learnt something here. Do well to follow me if you haven't and turn on notifications for more educational contents!
Well, that's all for now. I believe you learnt something here. Do well to follow me if you haven't and turn on notifications for more educational contents!
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