To put it bluntly, the foreign exchange spread is equivalent to a handling fee. The foreign exchange spread is essentially the difference between the buying price and the selling price. Generally, spreads are generated when doing foreign exchange transactions, and these spreads are the profits of foreign exchange dealers. There are two types of foreign exchange point difference, namely fixed point difference and floating point difference, but there are more floating points in the market.
Regarding floating spreads, foreign exchange spreads are affected by many factors, such as market demand for a certain currency, money supply and currency liquidity. Generally, the larger and more active the market, the lower the spread.
The bigger the spread, the higher the seller’s price and the lower the buyer’s price. Therefore, the more you will pay when buying, the less you will get when you sell, and it will be difficult to make a profit. In addition, in the market, some companies will provide floating spreads.
Spreads have a serious impact on the income of investors’ trading strategies. Traders themselves are very willing to buy low and sell high, but high spreads mean buying high and selling low, so traders will have lower profits.
How are foreign exchange spreads calculated? Forex spread calculation formula
How are foreign exchange spreads calculated?
The foreign exchange price is quoted by the liquidity bank, and it will quote two prices at the same time: the buying price and the selling price. The difference between these two prices is the transaction cost, that is, the spread. How to calculate the foreign exchange spread? For example, if the buying price of EURUSD is 1.2256 and the selling price is 1.2253, then the spread is 3 points, and the profit earned by foreign exchange traders is 3 points. Of course, the spreads of foreign exchange products and their platforms are different. Related reading: Why does foreign exchange spreads have floating spreads
Forex spread calculation formula
About the calculation of point value:
Point value = transaction volume per unit * minimum jump unit * (the latter currency / US dollar) The unit is US dollars.
Give an example of the current offer:
For example, the point value of the euro against the US dollar=1000000.0001(USD/USD)=10 USD
The point value of USDCHF=1000000.0001(CHF/USD)=10/USD/CHF=10/0.9245=10.82 USD
The point value of USDJPY=1000000.01(JPY/USD)=1000/USD/JPY=1000/81.6775=12.24 USD
The point value of EURGPB=1000000.0001(GPB/USD)=10*1.61=16.1 USD
The point value of GPBCHF=1000000.0001(CHF/USD)=10/USD/CHF=10/0.9245=10.82 USD
What is the foreign exchange spread Therefore, it can be seen that the pip value is only related to the latter currency of the currency pair.
In foreign exchange trading, you will see a quotation on both sides, consisting of a buying price and a selling price. The difference between the buying price and the selling price is the spread, and brokers make profit through the spread. The larger the spread, the higher the seller’s price and the lower the buyer’s price. Therefore, when you buy, you need to pay more, and when you sell, the less you get, making profitability difficult. Banks and dealers profit from the spread of buying and selling. When we do foreign exchange trading, the spread between the bank’s timely quotation directly affects our Huimin’s income.
Generally speaking, the larger the number of participants and the larger the trading volume, the currency trading spread will be smaller (for example, the euro, on the platform of some overseas formal margin dealers, the euro/dollar spread is only 3-4 points), and the regular volatility is Larger spreads (such as GBP/JPY, the regular volatility is larger, margin trading spreads are generally around 9 points.