✔️ Information reviewed and updated in December 2023 by Eduardo López
When you start investing in both Forex and cryptocurrency trading, you should know that there are concepts to take into account that are fundamental, such as the Spread. Knowing about investment terminology will save you a lot of time and trouble when making decisions.
One of the terms that you should keep in mind, especially because of the way they relate to your money and your returns, is the Spread. You may have already heard about the spread, but, to be 100% clear, here we will tell you everything you need to know.
➡✨ What is the Spread?
The shortest way to define it is as the difference between the buy price and the sell price of an asset, or the difference between the Bid and Ask. Some might say that it is the profit or profit that exists between two assets.
It is very easy to relate it, for example, to the usefulness of a product, since we buy at one price, we resell to another and we generate profits. The same way it works, only This has other types of factors to consider such as the profits charged on the Spread or the Bid and Ask prices.
➡✨ How is the spread interpreted?
It is represented in points, although in the Forex it is made in the form of Pips that are similar. Calculating it is very easy since you only have to subtract the sale price or the Ask price from the Bid.
For example, if we have a buy price of 1.3 and a sell price of 1.5 then we will have a spread of 0.2. Now suppose that the asset has an Ask of 2.45 and a Bid of 3.45, then the Spread will be 1.
➡✨ What influences the amount?
- Volatility: The assets with the highest volatility tend to be the ones with the highest spread due to drastic and unexpected changes in their prices.. In this sense, cryptocurrencies, for example, tend to have a higher spread than Forex or gold.
- Liquidity: The liquidity of a market also includes in the final amount because the more liquidity the market has, the lower it will be.. That is why, in liquid markets, it is usual to bet on the volumes of operations in order to compensate and have a much stronger spread.
➡✨ What are your commissions?
As we anticipated, the Spread is where many brokers, especially those that operate over the counter, collect their profits. It is very common for many platforms to charge trading commissions and expenses on the spread of a trade, for example, the sale of a Bitcoin.
You must take into account two things, the first is how big and strong it will be, well The wider it is, the higher the profit margin you will get. On the other hand, you must assess how much they will charge you for the spread so that you have clarity of the amount of the commissions.