How to Understand Forex Trading Spreads

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Watch more How to Invest Your Money videos: http://www.howcast.com/videos/402527-How-to-Understand-Forex-Trading-Spreads In the forex market, the trading spread is the difference between a currency purchase price and its sale price. With this guide, you'll learn how spreads can affect your trading profit margin. Step 1: Know common forex terms used for spreads Know common forex spread terms. "Currency pair" compares prices between two currencies. A "pip" is the smallest increment in a currency pair spread, or $0.0001. Step 2: Learn how spread quotes are listed Learn how spread quotes are listed. A CAD/USD quote is listed at 1.0434/0431. If you sell $100 CAD, you get $104.34 USD. If you buy $100 CAD, you pay $104.31 US. Step 3: Be aware of dealer spread profits Be aware that most dealers make profits by widening trade spreads. They sell currency at a price they determine and also buy at a determined price. Tip Dealer spread-width factors can include a transaction's size, market volatility, or the dealer's position on a specific currency pair. Step 4: Know when currency spread-widths are narrowest Know when currency spread-widths are narrowest before buying or selling. Times are usually in the New York morning and European afternoon. Did You Know? Since 1981, uncut sheets of currency from the U.S. Bureau of Engraving and Printing are available for purchase.