- Reviewed by James Stanley, Nov. 24, 2021
This article will explore top forex spread trading techniques and key tips traders should follow to protect themselves against a widening spread.
The forex spread[1] is the difference in price between the bid (buy) and the ask (sell) price. The spread can widen and narrow depending on a variety of reasons, which we get into shortly.
Beware a widening spread
Traders should always be aware of the spread because it is the primary cost involved in forex trading. A wider spread will lead to a larger trading cost.
Times of volatility[2] or illiquid currency pairs accompanied with leverage[3] could signal the end for a forex trader. Keep in mind that the more leverage used the higher the spread cost will be compared to your accounts equity, so it is beneficial to use little or no leverage.
Beginner traders should be especially wary of the spread. If you have a small account size and you take a slightly large position, relative to your account size, the spread could widen, and you may receive a margin call[4], or your position could even be closed.
The following three spread trading techniques and strategies are a great way to learn the basics to ensure your FX trading is a success: Keeping an eye on factors that influence the spread, the liquidity of the currency pair and the time of day.
1) Keep an eye on factors which affect the size of the spread
To avoid large spread costs associated with a widening spread, traders should be aware of the following factors:
- Volatility: Volatility in the market brought about by economic data releases[5] or a breaking news event could trigger a spread
