Spreads

The ‘Bid’ price is the highest price that a buyer is willing to pay for a security (Bid);The ‘Ask’ price is the lowest price that a seller is willing to receive for the security (Ask); The ‘Bid and Ask’ is the difference between the bid and ask prices and this spread indicates the liquidity of the security.

 

An example in EUR/USD

In Foreign exchange trading, the bid price (Bid) is 1.4390, selling price (Ask) is 1.4393, giving us a three points spread between the Bid and Ask prices.

If you want to buy in EUR, with an Ask of 1.4393, profit and loss will show 3:00, i.e. $30 (3 x $10 = $30) a loss of value. This can be seen as a loss of $30 (Jiancang costs).

Spreads can vary widely depending on the market and the security, and the stock exchange broker will charge a transaction fee per trade or spread. With a small spread, your transaction costs are usually fairly minimal, however as the spread increases, your transaction fees may also increase. This variability in transaction costs mainly effects shortterm traders, having little if any effect on long term traders.

Another phenomenon of trading in a volatile market is “slippage”, which is when the price on entry or exit is different to what you expected. This can occur due to the split second it takes your order to reach the exchange. Slippage cannot be eliminated entirely and some form of slippage is inevitable over time, however it is simply accepted as a cost of trading in volatile markets.

At OX Securities we not only endeavour to narrow the spread, minimizing transaction costs, but also we attempt a continued investment in fast transaction speeds to minimize slippage and increase your possibilities for a successful transaction.

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