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SPREAD
Brokerage commissions are not direct volume-price commissions in forex. Instead, brokers often earn income by the pip spreads. The spread is a difference between bid/ask prices. The brokerage commissions are not direct, but the broker earns income based on this difference. The pip is the fourth decimal place on a monetary unit. Smaller spreads mean more trader value and less broker earnings. Pips vary according to the currency pairs being traded. Average spread values charged on the forex market:
3 pips: EUR/USD
4 pips: USD/CHF, USD/JPY, EUR/CHF, EUR/JPY, GBP/USD
5 pips: EUR/GBP, USD/CAD, AUD/USD
6 pips: CHF/JPY
8 pips: GBP/JPY. GBP/CHF
12 pips: AUD/JPY, EUR/CAD
15 pips: GBP/CAD
The spread is usually only charged when you buy or sell, not when you buy and sell simultaneously. The pip spreads may not seem like much, but when the number of transactions and volumes of transactions are added up there can be a large difference in the trading cost.
Please note that the most brokers quote (or display) the sell price on their platform/chart. This price does not include the spread.
If you sell (short) a currency, the order will be executed at the price you selected, and spread will be added when you are closing the trade.
For example:
If the price on the chart, shows 1.0024 and you are selling at this price, your order will show a sell executed at 1.0024
If we deal with a 3 pip spread and you would like to close this trade with 20 pips profit, you need to wait for the price to go down 23 pips (1.0001).
When price on the chart sits at 1.0021 the buy price at that point is 1.0004.
Remember that the buy price is always xxx number of pips (the spread) above the sell price so when selling you need to add your spread to current price to calculate where to place your exit order.
If you buy, and price on the chart shows 1.0024 your order will actually show execution at 1.0027 (as the buy price is at that level, even if the chart price shows different number - again, remember that the buy price is always above the sell price - this is how the broker makes his profit)
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