Forex spread types - How many are there?
Although every spread type has one purpose of earning the broker some income they still come in different shapes and sizes. There are way too many to mention here, but the ones that are most important to know about are the following:
* Bid/ask spread
* Yield spread
* Option adjusted spread
* Negative spread
* Z spread
However, we will still only talk about Bid/ask spreads, Yield spreads and negative spreads as the others are a bit more advanced.
1. What is bid/ask spread
When asking for what is the spread in Forex, people usually mean bid ask spreads, as they are the most common ones to find with Forex brokers because they are such an easy way to get payouts for them. The difference between the bid and the ask price is pretty much what you are paying the broker to receive their service. Although 1 pip may sound really small for making a good income for a company, remember that spreads are calculated according to the size of the lot you are trading.
The BID Price
The BID price is something that you will be very familiar with. The BID price is the price you see on the charts so if EURUSD was printing 1.3000 on your chart then the BID price is 1.3000.
The ASK Price
The ASK price is where things get a little more complicated, the ASK price is responsible for causing those unexpected 'glitches' in your trade orders.
2. Yield spread
Yield spreads are also pretty much the same as bid and ask spreads, but they are usually calculated for different assets. For example, the most popular asset that yield spreads are associated with bonds and here's how they calculate them.
If there are two bonds of equal size and value, the difference between their yields will result in a yield spread.
So, if one bond has a yield of 10% and another has a yield of 5%, this would mean that the yield spread is only 5%.
3. Negative spreads
Negative spreads are only negative for the brokers themselves. Basically what a negative spread means is that you can trade without having to "pay" the broker anything from your trade orders.
4. Fixed and floating spreads
This is not necessarily a "type" of spread for Forex trading simply because every single spread can be either fixed or floating. They're like the types of the types of Forex spreads. A fixed spread is when the broker guarantees that no matter what happens in the market, the spread will remain the same. So, if the spread on EUR/USD was 1 pip, it will stay that way no matter what.
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