What is a spread? Is it really important if we want to trade wisely?

The spread is the difference between the selling price (Bid) and the buying price (Ask) of a currency, asset, or product. Simply put, it’s the price difference, and it’s a crucial aspect that traders need to understand deeply.

In the Forex market, the spread is the difference between the Bid and Ask of a currency pair. For example, if EUR/USD shows a Bid at 1.05672 and an Ask at 1.05680, it means that if we buy and close immediately, we will incur a loss of 0.8 pips right away. The remaining amount goes to the broker. This is how brokers generate income.

The spread is a good indicator of the market’s liquidity. In normal markets, spreads are usually narrow, around 0.001%. But if you see the spread widening to 1-2%, it indicates that liquidity has decreased significantly.

There are two types of spreads you need to know:

Fixed Spread: Set in advance and does not change. The advantage is that we can calculate costs accurately, but the downside is that Requotes often occur when the market is volatile. The broker will "block" our system and provide a new price, which is usually worse than before.

Variable Spread: Changes according to market conditions. Brokers do not control it; it fluctuates based on supply and demand. The advantage is that Requotes do not occur, and during high liquidity periods, costs may be lower. The disadvantage is that during major news events, spreads can jump rapidly, making speculation more difficult.

Between Fixed and Variable, neither is better; it depends on each trader’s style. Beginner traders who trade small sizes often benefit from fixed spreads. Professional traders who trade frequently and want to avoid Requotes may prefer variable spreads.

Additionally, remember that the more the spread fluctuates, the harder it is to make profits. Therefore, choose popular currency pairs like EUR/USD or GBP/USD, which have more stable spreads.

Forex trading is not gambling. It’s a financial transaction that requires planning and strategy design. Those who understand the spread system thoroughly will have a better chance of success.