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How to open an FBS account?
Click the ‘Open account’ button on our website and proceed to the Personal Area. Before you can start trading, pass a profile verification. Confirm your email and phone number, get your ID verified. This procedure guarantees the safety of your funds and identity. Once you are done with all the checks, go to the preferred trading platform, and start trading.
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How to start trading?
If you are 18+ years old, you can join FBS and begin your FX journey. To trade, you need a brokerage account and sufficient knowledge on how assets behave in the financial markets. Start with studying the basics with our free educational materials and creating an FBS account. You may want to test the environment with virtual money with a Demo account. Once you are ready, enter the real market and trade to succeed.
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How to withdraw the money you earned with FBS?
The procedure is very straightforward. Go to the Withdrawal page on the website or the Finances section of the FBS Personal Area and access Withdrawal. You can get the earned money via the same payment system that you used for depositing. In case you funded the account via various methods, withdraw your profit via the same methods in the ratio according to the deposited sums.
Bid-Ask Spread
How much will it cost you to trade on Forex? The most common way for a broker to ask a trader to pay a fee for the opportunity to trade on the currency market is spread. Here we will explain how spreads work.
What is a Spread?
A spread is a conventional concept for financial markets. It simply represents the difference between the price at which a trader may purchase or sell an underlying asset.
You had experienced spread already when you came to a bank or an exchange office to get foreign currency. The bank always shows two quotes of currency – the one at which it agrees to buy it from you and the one at which it is ready to sell it to you. The spread between these two prices forms the bank’s revenue from the foreign exchange operations it performs for you.
Every asset has a Bid and Ask price; about them in the next paragraph. When you Buy an asset, FBS opens your order at an Ask price, and vice versa; when you Sell an asset, FBS opens your order at a Bid price. You can think about forex Bid-Ask spread as a fee for performing a trade. Smaller spreads mean better conditions for traders.
How Does Bid-Ask Spread Work?
There are two counterparts in financial markets, buyers and sellers. Buyers want to buy an asset at the lowest price possible. On the contrary, sellers want to sell an asset at the highest price. These two sides create a buying price called Bid and a selling price called Ask.
Spread is the difference between Bid and Ask prices, so the Bid-Ask spread formula looks like this: Ask – Bid = Spread.
To sum up:
- The price we pay to buy the pair is called Ask. It is always slightly above the market price.
- The price at which we sell the pair on Forex is called Bid. It is always slightly below the market price.
- The price we see on the chart is always a Bid price.
- The Ask price is always higher than the Bid price by a few points.
- Spread is the difference between these two prices.
SPREAD = ASK – BID
For example, the EUR/USD Bid/Ask currency rates are 1.12502/1.12506. You will buy the pair at the higher Ask price of 1.12506 and sell it at the lower Bid price of 1.12502. This represents a spread of 4 points.
Types of spread
The types of spread depend on the policy of the broker. A spread can be fixed or floating.
Fixed spreads
Fixed spreads remain the same no matter what market conditions are at any given time. This way, you know for certain how much you will pay for a trade. Another good thing is that the broker won’t be able to widen the spread even if the market conditions change.
Floating spreads
Floating or variable spreads, on the contrary, are constantly changing. They will widen or tighten based on the supply and demand of currencies and the overall market volatility. Floating spreads usually increase during important economic releases and bank holidays when the amount of liquidity in the market declines. However, when the market is calm, they can be lower than the fixed ones.
How to choose the optimal spread
The best thing you can do with your trading is to seek a broker with a low spread, as it’s the main gauge of fees you will pay for your trading activity. FBS provides amazing spreads for the most popular trading pairs, making it easy for you to trade without worries.
The optimal type of spread depends on your preferences as a trader. In general, traders with smaller accounts who trade less frequently will benefit from fixed spread pricing. Traders with larger accounts who trade frequently during peak market hours (when spreads are the tightest) and want fast trade execution will benefit from variable spreads.
Notice that FBS offers trading accounts with fixed and floating spread, so you can choose the option you like best or have several different accounts.
Calculating costs
Note that the cost of spread on Forex is usually negligible in comparison with the expenses on the stock or options markets. As spread is quoted in points, a trader can easily calculate the cost of every trade by multiplying the spread in points by the value of 1 point. How to calculate profit?
Spread is an important parameter to consider when you choose a broker. Make sure that you are comfortable with the offered spreads. Notice that you can always test the company’s trading conditions without investing your money by opening a demo account.
The shorter the periods of your trade, the more important is the size of a spread. For instance, if you hold a position open for several minutes and your gain is 10 points, a 3-point spread would mean that you pay 30% of your profit for the execution of this trade. If you keep your trade open for a day, there will likely be a bigger change in the price – let’s say you would earn 100 points. In this case, you will pay only 3% of your profit as a spread.
More popular currency pairs have smaller spreads. For example, the spread for EUR/USD trading is usually very small or, as traders say, tight.
How to check spread in MetaTrader
When you click the “New Order” button, a window will appear where you can set the details of your trade. The window will also show the current Bid and Ask prices.
As mentioned before, by default, MT shows only the Bid price. To add the ask line to your chart, right-click anywhere on your chart and select “Properties”. Then click on the “Common” tab and check the “Show Ask line” box. Click on the “OK” button and the ask line will appear on smaller timeframes (on higher timeframes the Bid line will cover the Ask line).
If you still cannot see the ask line, then check to see that it is the right color. Go back into your properties and check to see that the grid (i.e. the Bid line) and ask lines are the correct color.
You will also be able to see the live Bid/Ask prices for all available trading instruments if you click “View” and then choose “Market Watch”. If you want to see spread for a particular symbol, right-click anywhere in the Market Watch window and select “Spread”. Note that MT4 quotes spread in MetaTrader4 points. To find the spread’s size in points, you will need to divide the numbers you see by 10.
What Causes a Bid-Ask Spread to Be High?
Sometimes, floating spreads can get very wide due to market fluctuations like important economic releases, news, or so-called Black Swans (unexpected and greatly powerful events that may cause vast movements). As time goes on, the spread tends to return to its normal state.
Notice that exotic instruments may have high spreads, too. For example, USDTRY (US dollar to Turkish Lira) is an exotic instrument, thus having a bigger-than-usual spread.
Finally, spreads widen when there is less liquidity on the market due to bank holidays.
Conclusion
The spread is a fee that traders pay to their broker for the opportunity to trade on the currency market. It represents the difference in the price at which a trader purchases or sells an underlying asset.
Spreads can be fixed or floating and the best type of spread depends on the preferences of the trader. If you trade more frequently, you are going to love tight spreads. Choosing a broker with low spreads is recommended to minimize the costs associated with trading and maximize the result.
Additionally, it's important to note that the spread is often quoted in points which are the smallest unit of price movement in forex. It is crucial for traders to understand the concept of spread and the different types of spreads offered by brokers to make informed trading decisions and manage their costs effectively.
2023-05-08 • Updated
Other articles in this section
- Economic Calendar: How to Read and Use
- How to open and close a trade in MetaTrader?
- How Much Do You Need to Start Trading Forex
- Forex Demo Account
- How to determine position size?
- Leverage and Margin: How Can You Use Them in Forex Trading?
- What Are Rollover and Swap and How to Use Them When Trading?
- Types of Trading Orders: Market, Limit, Stop, Trailing Stop, Stop-Limit
- When is the Forex Market Open?
- Calculating profits
- What are Lots, Points, and Leverage
- How to trade?
- Currency Pairs in Forex Trading
- What Software Do You Need for Trading?
- The Advantages and Risks of Trading Forex
- What Is Forex
