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What is a spread?

Difference between ask and bid

The difference between the Ask and Bid price is called the spread and is the commission you pay to your broker when you open a position.

The following types of spreads are generally used in trading:

Fixed and variable spreads

With a fixed spread, the difference between the Ask and Bid price is kept constant and does not depend on market conditions.

Variable spreads on the other hand, fluctuate in correlation with market conditions. Generally, variable spreads are low (around 1-2 pips) during times of market inactivity but under volatile market conditions, can widen to as much as 40-50 pips. This type of spread reflects the real market more closely but brings a higher level of uncertainty to the trade.

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