Prices of foreign exchange currency pairs are given in the form of the spread on offer, the offer – the sale price and the offer – purchase price. So, if the quote EUR / USD at 1.4256 / 1.4258, the trader who wants to go long (buy), will buy the currency pair at 1.4258 and the trader who wants to go for a short time (to sell), to sell a currency pair at the level of 1.4256.
The difference between the two charges in this case is 2 drops or 0.0002 (Pip typically estimated as 0.0001).
Generally, the more liquid currency pair exchange, the lower the rates / demand gap. Liquidity pair is determined by how many transactions occur on it, so it is usually usually pairs that are traded, have the lowest spread and offer suggestions.
As providers of currency exchange make their money
Currency – this is a market where traders can trade without commissions. This means that suppliers of currency exchanges bring their profit on the difference between the prices of bids and proposal.
In the case of the pair EUR / USD, which is quoted at 1.4256 / 1.4258, the trader, who had long waits to buy the pair at 1.4258. Couple in the market, which is now worth 1.4256, should lead to 3 points, the trader a profit of one pip – up to 1.4257, the second – to 1.4258 (break-even point) and the third – to 1.4259. Stir in two points at which the trader breaks – this is where the supplier receives its currency exchange gains.
What is shading the price?
currency exchange providers are typically added to the price point that they are granted the banks to increase their margins. prices Hue – is when a supplier exchange points, suggesting that a particular currency is moving in a certain direction, add a point of view on one side of the quote currency. Thus, if the provider exchange points suggests that the pair EUR / USD will rise in price, it can offer a pair at 1.4256 / 1.4260 and not 1.4256 / 1.4258, this means that a trader who is a long time, will have to buy a pair at 1.44260 .
Accordingly, the currency pair should bring 5 points for a trader to make a profit, and the movement in the four points at which the trader even made it would be profitable currency provider.
As a rule, if the buyers more than sellers of the currency pair, the supplier obscure side of buying, adding points to the value proposition. Similarly, if the sellers more than buyers of the currency pair, the supplier obscure the sale side, adding a point to the value of rates.
Why it works
If in each currency pair was 500 consumers and 500 merchants, a provider of foreign exchange added one point on each side of interbank quotations, the provider would make one point for each transaction (or 1000 points).
If there were 300 buyers and 700 sellers, the supplier would add 2 points to the value of the application and not to renew the bid price.
So interbank rate for the EUR / USD pair is 1.4255 / 1.4256, and the broker katsirue it at 1.4253 / 1.4256, ie, sellers are selling at 1.4253 and buyers – at 1.4256. Since the number of sellers in the market exceeds the number of buyers, the currency pair falls in price. Couple wants to fall by 2 points to retailers fell (from 1.4255 to 1.4253), and provider of currency brings these two points of profit. It is 1400 points of profit for 1000 merchants.
The easiest way to use it to your advantage
To find out if your ISP uses a forex price tint, you have to compare quotes from Reuters or expenses Bloomberg prices or create an account to two service providers, one of which will broker direct treatment, which charges a fee instead. profit from trades / offers.
If supplier costs constantly deviate from the one hand, this means that most orders from retail patrons come from this side. Since most retail investors are usually wrong, you can trade on the other hand, if the bias is on the side of the shop, you can sell, and if the bias on the side of the sale, you can purchase.
In addition, since the shortcomings of most spread form profits (remember that forex your couple want to cross the spread ask / buy to overcome before you can make a profit), you get the benefits without losing a shaded dots, essentially introducing its position on better price than most investors.
When choosing a Forex broker
Any broker that does not charge a fee for the forex market, get their profit spread "buy"; and the trader's responsibility is to compare the different currencies of suppliers, so that they ruined their commission structure and how they are paid.
The trader must choose a reputable supplier, based on the power company, the history of their life, any awards that they have won and they are regulated or regulatory authorities in your country. Good Forex provider offers this information freely, as well as transparent information about their distribution, available on their website or by phone.
Since forex spreads can vary due to the level of liquidity in the market, a good forex broker must give clients tighter spreads in the underlying market as well as the maximum limit.