As you may guess having basic knowledge in any sphere of life can make a person an intelligent one and can also help to apply this huge theoretical baggage in practice because you will never know when you need specific skills in your lifetime.
Nevertheless, this concerns and can be applicable according to Forex market as well: even if you don't know anything about how the largest financial market works you still may need certain knowledge, the so called Forex basics, if you change your mind in future and decide to try yourself as a Forex trader. And for sure knowing of basics is required if you intend to start your Forex career in foresight and right now choose the ways how to successfully start forex trading.
The following article will concern such topic as definitions and main functions of such FX phenomenon as FX spread. In order to understand what this term means and how it can help you to earn money in the Forex you should read very attentively the next information.
More than hundred of different technical terms can be found within the Forex market so no wonder newbies can't learn them at once and that is why it is more reasonable to stick to an idea that more profound knowledge of the basics is much better than having not so good and solid background of all terms of the Forex at once. One of such basics is Forex spread. In order to understand this term correctly you can't let yourself confuse it with other similar terms.
Forex spread can be denoted as the difference between the ask price (the price at which a trader sells a currency) and bid price (at which a trader buys a currency). However many traders do not understand its main function. For example, if we take the currency pair of the EUR/USD and its quote given by the FX market which is 1.2222/7, it means that FX spread of this pair equals 4 (the last figure minus the previous one) pips which stands in its turn for difference between these two digits of the currency pair. And if the value of this currency pair, suppose, was claimed as 1.2228/9 it means that Forex spread equals 1 pip.
Pip which can be ciphered as percentage in points is the usual and spread denominator that predetermines price changes and shows how plenty of Forex traders earn money accumulating them within their FX accounts. As they say spread serves as an essence and the main point why Forex brokers and other middlemen start to collaborate with traders and dealers. You see, the higher FX spread is the higher is the buying (bid) price and logically the ask (sell) price is lower and this advantage is widely used by Forex brokers.
All these spreads of the FX currency pairs are also significant due to the fact they can impact on a trader's scheme of trading in a more global way. Any trader wants to see trade lofty (like those in futures and stocks trading) and is quite concerned if his trade is low. Wider Forex market spreads always denote high trades plus having lower retails. Even if a spread is low and equals a half-pip - not even whole one pip - it can show you as a trader the difference between currencies in the pair and prompt to hold a deal for a while. From this point of view spreads can be very helpful.