The difference in
points between supply and demand (spread)
For example, in
the exchange rate of EUR / USD was 1.4503 / 1.4500
This will read
verbally without the first three digits as follows three 03/00
If the difference
here was only 3 points, this 3 points is the broker fare on the size of the
deal.
An important
point to remember here the kind of relationship of the Spread payment with deal to buy or sell ..
When you buy a
currency you will pay the difference spread between the two currencies because
you pay the difference until you open the package and enter the market, and do
not pay anything when you go out, but when you sell the currency you will not
pay the spread between the two currencies when you open the package, but will
pay this spread when you want to close the deal and get out of the market.
Spread among
brokers
* Note: brokerage
firms seeking to provide tight competitive spreads differences, but there are
cases where spreads may widen beyond the typical spreads according to market
conditions, especially the time of the news, you get the brokerage firms on the
exchange rates directly through its relationship banking with the largest banks
and financial institutions in the world of price providers.
Most brokerage
firms offering spreads difference of 2 to 4 points in the major currency pairs
and this cost represents about 0.025% of the cost of the deal, unlike equity
markets which may cost 0.125% or five times.
Try to choose a
brokerage firm that displays the difference in spreads in this average and do
not choose companies that offer variable spreads significantly in cases of
market volatility with the knowledge that the spread is not everything in the
selection of companies.
Spread difference
among the most famous brokerage firms
|
Currency Pair
|
Less spread difference
|
Highest spread difference
|
|
EUR/CHF
|
1 POINT
|
2 points
|
|
EUR/GBP
|
1 POINT
|
2 points
|
|
EUR/USD
|
1 POINT
|
3 points
|
|
USD/JPY
|
2 POINTS
|
3 points
|
|
GBP/USD
|
2 POINTS
|
3 points
|
|
USD/CHF
|
2 POINTS
|
3 points
|
|
AUD/USD
|
2 POINTS
|
3 points
|
|
USD/CAD
|
3 POINTS
|
4 points
|
|
EUR/JPY
|
3 POINTS
|
4 points
|
|
CHF/JPY
|
3 POINTS
|
4 points
|
|
AUD/JPY
|
4 POINTS
|
5 points
|
|
NZD/USD
|
3 POINTS
|
4 points
|
|
GBP/CHF
|
5 POINTS
|
6 points
|
|
EUR/CAD
|
4 POINTS
|
5 points
|
|
AUD/CAD
|
5 POINTS
|
6 points
|
|
CAD/JPY
|
4 POINTS
|
5 points
|
|
GBP/JPY
|
6 POINTS
|
7 points
|
|
NZD/JPY
|
5 POINTS
|
6 points
|
|
EUR/AUD
|
6 POINTS
|
7 points
|
|
EUR/NZD
|
6 POINTS
|
7 points
|
|
AUD/NZD
|
6 POINTS
|
7 points
|
|
GBP/AUD
|
9 POINTS
|
11
points
|
|
USD/DKK
|
6 POINTS
|
7 points
|
|
AUD/CHF
|
4 POINTS
|
5 points
|
|
USD/SGD
|
Changeable
|
Changeable
|
|
USD/HKD
|
Changeable
|
Changeable
|
The
relationship between the spread and the cost of the deal:
The
formula for calculating the cost of the deal, according to the Spread
Transaction
cost = ASK price – Bid Price = price points difference (spread)
For
example, in the exchange rate of USD / JPY is the 119.82 / 119.80
If
the cost of the deal here is only 2 points, 3 points this fare is the mediator
of the size of the deal.
Because
11982-11980 = 2 point difference between the bid price and ask price.
Point:
At
this term we will use some of the math you learned school.
You
probably heard about the word "point " in the stock markets, for
example.
As
you probably heard about the terms of the point pip or Parcel lot in the
currency markets on the whole we'll show you how both of them are calculated.
Take
your enough time to study this important information because it is very
necessary to each trader in the profession of currency trading and do not think
to start any trade unless you are comfortable with the point value
"Point" that want to enter then and you are convinced that you have
learned how to estimate the gain or expected loss.
What
does Point or Pip mean?
Point
is any change occurs in the value of the currency is called the movement of the
point.
If
EUR / USD moves from 1.4500 to 1.4501 so (Point) one point.
The
place of point is the last decimal place , it is that measure of your profit or
losses.
Is
every currency has its way of calculating the point?
Yes
that every currency has its own way it is necessary to learn how to calculate
the value of that currency point.
First,
if the U.S. dollar is the main currency in the pair
The
calculation would be as follows:
For
example USD / JPY exchange rate at 119.80
Note
that the pair has to only two places decimal places and most other currencies
have four decimal places in the case of USD / JPY will be the value of one
point = $ 0.01
USD
/ JPY exchange rate is 119.80
0.01
divided by the price = value of the point
So 0.01 ÷ 119.80 = 0.0000834 $
Another
example USD / CHF at the exchange rate of 1.5250
In
the case of USD / CHF will be the value of one point = $ 0.01
0.0001
= Price divided by the value of point
0.0001
÷ 1.5250 = 0.0000655 $
Another
example USD / CAD exchange rate of 1.4890
In
the case of USD / CAD will be the value of one point = $ 0.01
0.0001
= Price divided by the value of point
0.0001
÷ 1.4890 = 0.00006715 $
First,
if the U.S. dollar is not the main currency in the pair
We
want to get the value of the U.S. dollar , we should add more than one step
For
example EUR / USD at the exchange rate of 1.2200
In
the case of EUR / USD will be the value of one point = $ 0.01
0.0001
divided by price = value of the point
0.0001
÷ 1.2200 = 0.00008196 euros
*
But we need to return to the U.S. dollars so we add another method of
calculation which are:
exchange
rate× euro
So
0.0008196 × 1.2200 = 0.00009999 $
after
summing it will be 0.0001
Example
GBP / USD at the exchange rate of 1.7975
In
the case of USD / CAD will be the value of one point = $ 0.01
0.0001
divided by price = value of the point
0.0001
÷ 1.7975 = 0.0000556 pounds
But
we need to return to the U.S. dollars so we add another method of calculation
which,
GBP x Exchange Rate
So
0.0000556 × 1.7975 = 0.0000998
When
summing it will be 0.0001
Of
course, you would not calculate all of this in every time you need it is a
matter of time, but almost all of the large brokerage firms will solve this for
you automatically Through their sidewalk trading program but we explain it
because knowing something is better than not knowing.
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