When you begin trading, you’ll notice that you’re given a ‘bid’ (or ‘sell’) price and an ‘ask’ (or ‘buy’) price. The ‘bid’ is the price at which you sell the base currency, and the ‘ask’ is the price at which you buy the base currency. The difference between these two prices is what we call the spread.
When a trade is opened, there are always third parties who facilitate the opening and closing of that trade, like a bank or a liquidity provider. These third parties must make sure that there is an orderly flow of buy and sell orders, which means that they have to find a buyer for every seller and vice versa.
The third party is accepting the risk of a loss while facilitating the trade, thus the reason the third party will retain a part of each trade – that retained part is called the spread!
The spread itself is measured in ‘pips’, which is the smallest unit of price movement of a currency pair. So, the spread in the below example is 0.2 Pips.
Risk Warning：Trading financial products on margin carries a high degree of risk and is not suitable for all investors. Losses can exceed the initial investment. Please ensure you fully understand the risks and take appropriate care to manage your risk.
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