What Are Spreads
In CFD trading, the bid price is not the same as the ask price. The difference between these prices is referred to as a ‘Spread’. Learn more now.
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When you trade in the digital and financial markets, you can buy and sell assets. These assets will be bought or sold at a particular price. This price includes the cost of a spread. Spreads are the difference between the bid (sell) price and the ask (buy) price of an asset.
To understand how you can profit in the financial markets, the market will need to move beyond the spread amount in your trade’s favored direction. If, however, the market remains in the spread range or it moves against you, your position will be a losing trade and you will lose your investment.
A market’s spread, at any given time, is expressed utilizing the last large digit of the price quote. Let us look at some examples. Let us say the buy price for the Dow Jones is 6446.5 and the sell price is 6444.5. The spread, in this case, would be 1.0. Here is another example. Let us assume that the buy price for the EUR/USD currency pair is 1.21930 and the sell price is 1.21965. This would mean that the spread is 3.5.
As a CFD trader, it is vital to understand the spread and to look at the spread that the broker charges. If the spread is narrow, there will be fewer trading costs for you to pay and vice versa. Also, is vital to understand that there may be other costs involved in trading. Some brokers charge commissions as well and you could also find those that charge a mix of spreads and commissions.