Forex 2 Pip
You want to stay away from small spreads but at the same time you don’t want to pay large spreads, as making profits is difficult with large spreads. In this case, you should go for a Forex 2 pip spread. It would be ideal for you, as Forex 2 pip spread neither falls under small spread category nor under large spread category.
But how does this Forex 2 pip spread work? As you know, a pip is the smallest unit by which a Forex cross price quote changes. So, in Forex trading, if EUR/USD bid is quoted at 0.9767 and it moves up Forex 2 pips, it will be quoted at 0.9769.
The spread is the difference between the bid and asking price. You will note that while trading the currency market, there will also be a difference between the current value of the currency and what you pay for it. That is spread and that is where the forex brokers make their profit. Remember, because of this profit the brokers can offer you a forex account for free - without any fees!
Let's say the current EUR/USD price is 1.27237 and your forex broker has a Forex 2 pip spread, then you will pay 1.2739 when you buy. You will also note that the Forex 2 pip spread is usually available for major currency pairs like EUR/USD, USD/JPY, EUR/JPY etc.
Look at another example of Forex 2 pip spread: the GBP/USD pair is quoted at 1.9346 Bid and 1.9348 Ask, meaning that it would cost you 1.9348 to buy this contract (at this moment) but you would only get 1.9346 if you sold it (at the same moment). These quotes change frequently, as trades are made and new price levels are established. Sometimes the changes are only seconds apart.
In the above example there is a 2 Pip difference in the Bid and Ask price, representing a Forex 2 Pip spread. The spread in this contract is likely to remain the same for a very long time; the spread difference does not normally change for a given foreign exchange market.
Spread is accepted as a cost of doing business in Forex market. When your entry transaction is made you have already sustained a paper loss equal to the spread. If you are a buyer, your contract must appreciate by 2 Pips (in our example above) before you break even. This is how the market maker makes money from the transaction. However, without such a dealer facilitating the trade, you would never be able to trade.
Forex 2 pip spread can be offered by those brokers who have huge monthly trading volume in forex market and have established liquidity relationships with the world’s top forex banks. With the banking relationships in place the company can have access to over $1 billion in market liquidity. Consequently the company is able to pass along even smaller spreads like Forex 2 pip to most active trading customers.
Click here to read our broker reviews and discover which brokers offer the lowest trading spreads.
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