Spread is the difference between Bid Price and Ask Price. The difference is where the brokers get their own business profit less the commission they give to their introducing brokers (IB agents).
For the traders, the spread is taken from each trade transaction. This makes traders confused when looking at the chart. At the chart, the default price you see in most brokers is the Bid Price. This makes the Ask Price not visible but always moves with the Bid Price, above it. So every time you look at the price in your chart which is the Bid Price, always imagine that there is an Ask Price above it, moving with it.
If you want to see a visible movement of the spread. At the MT4 menu, click "New Order". A window will pop out. At the left side of the window, you will see red and blue lines moving. The red line is the Ask Price. The blue line is the Bid Price. Watch them move.
If your account is using a standard variable spread. You will see that the difference between Bid and Ask is changing. Since the spread is the brokers' business, spread changes with supply and demand. When the market is volatile, there are many transactions going on due to high demand. When there's a high demand for Forex transactions, the spread gets bigger as well.
Spread makes newbies confused. Since the price you see in the chart is only the Bid Price, you will notice that there are different behaviors on BUY LONG and SELL SHORT transactions.
BUY LONG = When you buy long, tho you see the Bid Price, the opening price will be the Ask Price. So when a trade is open, you will have a negative profit right away as the opening price is above the current price already. If you set a Take-Profit (TP) price point above, let's say 10pips, when the current price (Bid) moves upward and hit that TP and queued already in the server. It will be closed exactly at the current price. If you set a Stop-Loss (SL) price point below, when the current price moves downward and the current price (Bid) hits the SL price, it will not close yet. The SL will activate only when the Ask Price hits the SL price point. That's why you'll see in the chart that the price moves lower than the SL before it gets closed.
SELL SHORT = When you sell short, the current price (Bid) becomes the opening price. When you set the TP price and the current price (Bid) moves downward and hit the TP, it will not close right away. The Ask price should reach the TP price before it closes. So the current price (Bid) passes a bit below the TP before it closes. When you set the SL above, and the price moves upward. When the current price hits SL, it will close right away.
For the traders, the spread is taken from each trade transaction. This makes traders confused when looking at the chart. At the chart, the default price you see in most brokers is the Bid Price. This makes the Ask Price not visible but always moves with the Bid Price, above it. So every time you look at the price in your chart which is the Bid Price, always imagine that there is an Ask Price above it, moving with it.
If you want to see a visible movement of the spread. At the MT4 menu, click "New Order". A window will pop out. At the left side of the window, you will see red and blue lines moving. The red line is the Ask Price. The blue line is the Bid Price. Watch them move.
If your account is using a standard variable spread. You will see that the difference between Bid and Ask is changing. Since the spread is the brokers' business, spread changes with supply and demand. When the market is volatile, there are many transactions going on due to high demand. When there's a high demand for Forex transactions, the spread gets bigger as well.
Spread makes newbies confused. Since the price you see in the chart is only the Bid Price, you will notice that there are different behaviors on BUY LONG and SELL SHORT transactions.
BUY LONG = When you buy long, tho you see the Bid Price, the opening price will be the Ask Price. So when a trade is open, you will have a negative profit right away as the opening price is above the current price already. If you set a Take-Profit (TP) price point above, let's say 10pips, when the current price (Bid) moves upward and hit that TP and queued already in the server. It will be closed exactly at the current price. If you set a Stop-Loss (SL) price point below, when the current price moves downward and the current price (Bid) hits the SL price, it will not close yet. The SL will activate only when the Ask Price hits the SL price point. That's why you'll see in the chart that the price moves lower than the SL before it gets closed.
SELL SHORT = When you sell short, the current price (Bid) becomes the opening price. When you set the TP price and the current price (Bid) moves downward and hit the TP, it will not close right away. The Ask price should reach the TP price before it closes. So the current price (Bid) passes a bit below the TP before it closes. When you set the SL above, and the price moves upward. When the current price hits SL, it will close right away.
