Now, moving on in this section, you will learn the two prices in the financial markets, not just the forex markets. What is the spread and why it matters and how to reduce the spread? Okay. So let's get started the two prices in the market. So here's the thing right when you are trading the forex market, the stock market or any of the financial markets.

There is always two prices, so they are number one the bid. The bid is the price which you can sell at and the ask this is the price which you can buy at. So this concept is the same as you know, going to a money changer whenever you let's say, for example, you want to, you, know, buy and sell a certain currency. Let's say euro against the usd you are always being quoted, two prices, the beat and ask, and it's the same concept over here.

So let me uh share with you. You know and explain what this means so the bid right, let's say, for example, if you look at a chart, i'm going to bring up my charts over here. You see this is the dollar the usd against the singapore dollar. This over here is the bid, and this is the ask so as of right now, if i want to sell the us dollar against the singapore dollar, i can sell it at 1.3 and if i want to buy us dollar against the singapore dollar right now, i Will look at this blue box and i can buy it at 134.

115. make sense. So there's always two prices right which is being quoted in the forex market, the bid and the ask and depending you know what you're trying to do if you're trying to buy, then of course you will pay attention and see. What's the asking price, if you're looking to sell, if you're, looking to short a currency pair, you will pay attention to what is the bid price? What is the spread? Well, the spread very simply is this: is the difference between the bid and the ask.

So, let's say, for example, euro usd is trading at one three: five: zero, zero. This is the b and the ask is trading at one three: five: zero one. This is the ask. So the difference right between the bit and ask in this case is one pip.

So this is the spread on euro usd, and now you might be wondering hey right now. You know: why does the spread matter as many? What has he got to do with me? Well, a lot right. He has to do a lot with you and your own trading and here's. Why spread right? If you look at it right, you can look at it in the form of transaction cost in forex trading.

Most of you probably don't pay commission to your broker. So your transaction cost is in the form of a spread. So let me explain how this works so the higher the spread, the higher your transaction cost and likewise the lower the spread, the lower your transaction costs, and i'm going to give you an example. So you can see what i mean.

So let's say you buy one standard lot of euro usd and the spread is three pips. How much does the spread cost you in in dollar terms? So you know, as we have you know, discussed earlier. One standard lot is 100 000 units, 100 thousand units, and the value per pip is ten dollars. So if your spread is three pips, this means right.

The moment you put on a trade when you trade one standard lot of euro. This should be usd for functional voice. I okay! When you buy one standalone of euro usd, you are immediately down 30 on this trade. That is the cost of the spread in terms of us dollar to you.

So, if you think about this right, what if the spread now is one pip? Can you see how much of a difference this make if the spread now is one pip? The cost to you is just ten dollars see see what i mean by having a wide spread and a tight spread, the higher the spread, the more expensive your transaction cost is going to be the lower the spread, the cheaper, your transaction cost is going to be So now the question is: how can you reduce the cost of the spread? So one thing to point out is that uh, it's near impossible to you know, tell the broker to give you a tight spread right, because it's pretty much fixed and there's nothing. You can do about it, but what you can do on your end is this focus on major currency pairs so, as mentioned earlier major currency pairs, these are the most popular currency pairs that are actively traded in the world and if you look at their spread right, They are usually right, smaller, tighter than the other currency pairs like the exotic or even the uh, the uh cross currency pair. So let me share this with you and you can see over here i'm going to pull out trading view. If you look at our daily timeframe - and in case you guys are wondering this platform is trading view, it provides a charting services in case if you need it.

So, if you look at euro usd, you can see what is the spread right now. So, for example, the difference between the bit and us is actually shown over here in this middle. The spread on euro usd right now is 0.2 pips. If you look at pound dollar, the spread now is about 0.3.

It's moving, you know up and down just pay attention to this portion here about 0.5 and if you look at aussie against the dollar, it's about 0.23 0.2 right now. But what if you look at other currency pairs? Maybe you look at you know something like the cross currency pair like pound new zealand. The spread year is now 1.2. If you look at something exotic like dollar against, the turkish lira is 66.3 pip, so you can see right if you want to have you know, lower transaction costs all right focus on major currency pairs.

The spreads are usually tighter, usually lower, and another thing that you can do is to trade the higher time frame, so the cost of your spread is lower in terms of percentage. So let me explain what this means. So let's say you have one pip spread with a five pips stop loss. If you think about it right, your spread is 20 right of the size of your stop loss.

So let's say if your stop loss is five pips. Your spread is one pip right. The spread as a function of your stop-loss eats up about 20 of it, so this means right. In essence, your stop-loss is only four pips.

If the market moves four pips against you, you are going to get stopped out of your trade. On the other hand, if you have a one-pip spread, but your stop-loss is 100 pips and the reason why you can afford a 100-pip stop-loss is because you're trading off the higher time frame, you have a wider stop-loss right because you're trading on a higher timeframe in This case the one-pip spread it's only one percent of the size of your stop-loss. So in terms of cost, it's only one percent of the size of your stop-loss. So you can see that in the way right, your spread right, you're, paying or rather a percentage of your stop-loss - is smaller.

When you have a wider stop-loss and to have a wider stop-loss is usually because you are trading off the higher time frame and if you think about this, if you trade on the five minutes chart on the 15 minutes, chart the price action right. The way the candle moves up and down right, the range is usually smaller compared to trading of the daily time frame where the range is much larger. So when you are trading off the higher time frame with a larger range, it makes sense to have a wider stop-loss to accommodate right. The largest swings on that time frame.

So this is why, if you trade off the higher time frame, your stop-loss is usually wider, and if your stop-loss is wider, you will realize that this spread right as a function of your stop-loss right in terms of percentage is usually lower compared to you know, let's Say you trade off the one minute or five minutes time frame the spread as a function of your stop-loss right is usually wider and you're gon na you know end up pay more in transaction costs. So let's do a quick recap number one. The spread is the difference between the bid and ask the bid is the price that you can sell it. The ask is the price that you can buy it number two, the lower the spread, the lower your transaction cost.

And finally, if you want to reduce the cost of the spread, what you can do is to focus on the major currency, pairs or trade off the higher time frames. You.