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The spread is the difference between the bid price (price at which you can sell) and the ask price (price at which you can buy). This means that as soon as you place a trade, it will be negative by the value of the spread.
That is the trader's cost of doing business.
Understanding Spreads Say the currency pair EUR/USD's bid and ask prices are respectively at 1.4800 and 1.4802. If you were to place a long order at 1.4802, assuming you wanted to "close" the position right away, you would have to sell at 1.4800 to liquidate it. This would incur a loss of 2 pips. The opposite would be true for a short order. This example illustrates how RFXT and most brokers make a profit, though it is important to point out that a broker does not necessarily earn the whole spread. Spreads will greatly affect your trading as they fluctuate. If we look at the example from earlier and assume the spread fluctuated from 2 pips to 20 pips and you proceed to enter a trade, instead of being "down" 2 pips you started your trade at a negative 20 pips. In the event that funds in the account fall below margin requirements, the RFXT Dealing Desk will close some or all open positions. Why do spreads fluctuate?This is a question that puzzles many traders, and the reason is simple: low liquidity in the markets. While there are many factors that may cause fluctuation, let's talk about what it means. Essentially, low liquidity means that liquidity providers (banks, brokers, etc.) are not as willing to buy or sell any sort of currencies. This usually occurs during economic news releases but can also arise at other times such as major market closing and opening. Think of it this way: you are Bank A and you own 30 million dollars worth of property. You realize that a major economic event that will impact the value of your property will be announced in 15 minutes. Bank B wants to buy all of it in Dollars. If Bank A sells all of its property before or after the news announcement, it will lose or make a lot of money on the transaction. However, if Bank A only sells 15 million dollars of its property before the news release, and another 15 million after the news release—Bank A will only lose or make a little amount of money on the transaction. *Spreads are not fixed and will fluctuate during periods of market volatility or low liquidity.
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