This is a question that most of the beginners ask, the answer is here. Spread is actually a difference between the buying and selling price. When you are going to buy the Eur/Usd currency pair, then the buy price will be different from selling price, that difference is actually spread.
Some brokers offer fixed spread and most of the brokers offer floating spreads. If the spread is fixed then it is good, because it will not change while market fluctuates, but if the spread is floating then it will be very much difficult for some kind of traders who think that they will earn with small accounts, their accounts may wipe out.
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| Spread between buying and selling price is 0.9 pips |
Floating spread starts from 0 pips, but sometimes it widen up to 70 pips, that is enough to wipe out a small account, if there is a trade opened in an account and market fluctuate or any kind of rumor hover in market. Just like some times ago, it happened with Usd/Chf pair, at that time market fall terribly bad and it caused bankruptcy for so many institutions. So, if institutions may bankrupt then small traders will not sustain in market. You are thinking that if the market fall, then what is the matter of spread in this? Ok, let me explain you. When the rumor hover about swiss franc at that time, then suddenly the traders saw wide spread in their meta trader, and most of the brokers stopped trading in this pair, this is practice of market that when they see that there might be a sudden fluctuation in market, then they stop trading that currency pair, as I saw this thing in Russian Ruble, Swiss Franc and Britain Pound cases.
So, whenever you choose the forex broker, then you need to see that what kind of spread they are offering, what is spread, if fixed or floating? What meta trader they are using? I hope you will understand these terms when you get familiar with market.
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