As a forex trader, you should always have one eye on spreads. When picking a forex broker you should, before anything else, check to ensure they have the smallest spread, mostly single digits below 5.
In today’s forex market, most brokers do not charge commissions for trades or deposits/withdrawals. So, how do forex brokers make money? Through forex spread.
A forex spread is the difference (in pips) between the bid price and the ask price.
Every currency pair is quoted with two prices, a bid price and an ask price. Allow me to explain. Your forex broker may be paying 1.8900 for the EURUSD pair. He will then allow you to buy this pair for 1.8902 or sell it for 1.8998. This is a 4 pip spread which is fair in the current market.
Be wary of brokers who claim to charge nothing for deposits, withdrawals, trading, rollover but then come back to hit you hard with double digit spreads. Also be careful when trading exotic pairs as they often come with high spreads. It might seem like a pip or two, but the more often you trade the higher the cost of trading will become if you are not careful with spreads.
If you have any questions regarding spreads, just pop them in the comment section below and I (or the community) will get back to you asap.
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I wish you happy and prosperous trading.