Why are Spreads important for Forex scalpers?

Why are Spreads important for Forex scalpers?

May 25 • Forex Trading Articles • 2372 Views • Comments Off on Why are Spreads important for Forex scalpers?

Forex scalpers are the traders who trade in currency pairs, but they buy or sell the currency, hold it for a little time, and then close the position, and in between that holding time, they try to take advantage of small price movements. This is a common practice for the whole day. They typically hold trading for seconds to minutes at a time.

What are spreads?

While trading in the forex market, the currencies are sold and bought, the difference between these prices of the currency pairs is called a spread. In simple, the difference between bid (sell) price and ask (sell) price is called a Forex spread.

Why are Spreads important?

Spread is an important part of forex trading, but many traders don’t pay heed to its impact. Looking at the spread of a given currency pair and how much that pair moves in the day, traders can determine which spreads are worth paying and which are not.

A forex scalper should have sound knowledge of the market. Wider spread means a big difference between the selling price and buying price. Usually, wide spreads occur when there is low liquidity and high volatility, while lower spreads indicate vice versa.

How do Spreads impact forex scalpers?

The forex market operates 24/5, but a forex scalper will not trade the whole day. Instead, a good forex scalper has a better insight of spreads and trades for some specific time of the day, like during London open session.

So it won’t matter for him that what volatility was for the whole day. It only matters what volatility and spreads remain for the duration of his trading.

A trader who works wisely and trades with low spreads would have long-term gains and low maintenance cost.

Traders should avoid high spreads and monitor the average intraday spreads for the best pairs. However, spreads fluctuate daily.

Why is low spread more important?

As scalping positions are held for little time, traders choose low spread currency pairs as if the spread is too large, there will be no profit left. So, to control the spread at low, there are many strategies that a forex scalper can apply, like extreme scalping and gold CFD trading strategy.

A currency pair can move 20 pips long or short and then pull back 15 pips in the very next minute. This oscillation can happen again in the next five minutes and then back. These are very small moves occurring in the forex market in a matter of minutes, and forex scalpers have to keep an eye on it.

What a trader has to do is just to hold the currency for a few seconds or one minute, then pass it on for bid, and that small gap the spread determines the benefits a trader gain. So, simply we can say that forex scalping needs a deep knowledge of market and trading strategies and among all other factors, spread is the most important element for a forex scalper which can make or destroy the day of trader.

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