How tight Forex spreads make you money

Many people take their chances at forex trade to make money. They patiently stand (or sit) in vigilant watch of every activity of the currency pairs they have chosen. Why? A forex trader knows that it takes only a second or a minute in time to make a trade that can earn or lose your money. Thus, quick action and quick thinking is a top quality to have when you decide to invest in forex.

Forex spreads

You can earn money in foreign exchange trading by taking a close watch at their spreads. Tight spreads must be read the right way. Otherwise, why waste spending time and money in the foreign exchange market?

The Spread – Simplified

A spread is “the difference between ask and bid prices of a currency pair”. Spreads determine how much a broker can take as commission in every trade you make. A commission is made when there is a difference in placing and closing of a long order.

Spreads are usually quoted in the pips, which is short for percentage in point. A pip, also referred to as point, is the last or the fourth digit (decimal place) of the quote designated to two currencies. Low pips would equal to high profit in forex trades.
A higher or wider spread means that you have to shell out more money when buying and receive less money when selling. This is the total opposite of your objectives when you first decided to enter the foreign exchange trading. Thus, it is more prudent for new traders to deal with a tight spread forex broker or a low spread forex broker.
Why Choose a Broker with Tight Spreads?

If you recognize the importance of a good bargain, then you would want to invest in a tight spread forex broker. Such broker takes lesser money when you trade. Thus, you get your money’s worth every time you trade. Tight spreads are not erratic and do not usually move farther than the direction you initially estimated. Hence, it is easier to forecast a gain or a loss.

If you finally decide to pick on broker with tight spreads, always monitor how he performs. Sometimes, although brokers boast of tight spreads, they may deceive traders by actually delivering wider spreads.

When you trade, low spread forex brokers are also good options for investment.