amex american stock exchange. History of the AMEX exchange
In the vocabulary of traders, the term “spread” (“spread”) often slips, which means at least two different phenomena.
First of all, spread is the difference between the maximum bid and the minimum bid of an asset. This difference can be floating (that is, due to the market situation) and fixed. Fixed spread brokers, in fact, themselves set the price of buying and selling, focusing on current offers. As a rule, such a spread is set in Forex trading. The broker with the lowest spread attracts more clients because it offers the best conditions.
It is necessary to evaluate the floating net spread: the greater the difference between the purchase and sale prices, the higher the liquidity of the asset. And vice versa. In the short term, liquidity (i.e. volume and intensity of trading) is important.
Spread is also understood as a trading method, which consists in opening two positions on similar assets (for example, shares of Gazprom and Lukoil). Positions are multidirectional: one asset is put up for sale, on the other - they send a request for purchase. The selling price of the first asset is always lower than the buying price of the second. Thus, traders receive a margin (spread) - the difference between the purchase price and the sale price.
How to earn on the spread?
If we are talking about the method of trading, everything is simple:
You match two assets (or two baskets of financial instruments). Let it be the shares of Lukoil and Gazprom. You buy Gazprom securities and wait for the price to change.
At a certain moment, Gazprom's shares begin to grow, while Lukoil's quotes also grow, but not so quickly.
You put up a basket of Gazprom for sale and apply for the purchase of Lukoil shares. For 100 shares of Gazprom, you get 13,253 rubles, and you buy 100 shares of Lukoil for 12,200 rubles. Your "income" is 1053 rubles.
After some time, Lukoil shares become more expensive and almost equal in price to Gazprom. You wait for this moment (“catch” the spread between shares of similar companies) and sell the stake in Lukoil for 13,300 rubles. At the same time, you buy Gazprom shares for 13,310 rubles.
Thus, you again received 100 shares of Gazprom at your disposal. At the same time, at the first stage you earned 1053 rubles, and at the second stage you spent only 10 rubles (excluding broker commissions).
The so-called spread trading is the least risky way to make money on the currency or stock exchange. A trader minimizes risks by trading two similar assets. However, this is not a panacea: if there are problems in the country or industry, the price will fall, and you will have to use other strategies and, possibly, assets to earn money.
What should an investor know about the spread?
Spread strategies as a financial instrument are more suitable for traders. They work in the short and medium term. In the long term, making money on the difference in the rates of two assets is more problematic. Yes, and it makes no sense: investment strategies are built on slightly different principles.
However, it is worth considering that some brokers set a fixed spread (part of which they take for themselves). If you are already paying a commission for each transaction, look for a broker with a zero spread. In addition, you should keep an eye on the spread for buying and selling an asset: if it gets bigger and bigger, liquidity valuable papers falls. This happens during a crisis and with unreasonable growth (“bubble inflation”) of prices.
Spread in the Forex market is an integral part of any transaction of a private trader. However, not all beginners understand what it is and how it is formed, but the spread affects profit and is considered one of the important criteria when choosing a broker. It is worth understanding all the nuances in more detail, so as not to inadvertently lose your investment.
TOP 3 Forex brokers in the world:
- Each broker receives quotes from their liquidity providers and broadcasts them in the terminal for traders. Both the selling price and the buying price are transmitted.
- The broker can make a premium to the spread as his commission (unless he has another mechanism for charging fees for services).
Since the spread on the exchange is a market indicator, it is influenced by many things. The following factors are involved in the formation of the difference, for example:
- volatility of the trading instrument;
- trade volumes;
Also, brokers themselves can directly influence the difference indicator. Usually they set values depending on the type of accounts, the type of execution and the type of spread itself.
In order to better understand the formation of this parameter, it is necessary to give a specific example.
By opening the terminal and studying the current quotes, the speculator plans to open a position. To do this, he studies the market situation, trends, as well as BID and ASC indicators:
- The trader opens a buy position, predicting its further growth.
- To do this, he uses the ASK indicator, which at this moment is 1.5432.
- The currency goes in the right direction, and the indicators increase by 14 points, so the trader decides to sell the asset.
- To do this, he uses the BID indicator, according to which he sells. This price is not 1.5446 but 1.5444. 1.5446 is the ASK price, which is not relevant when selling.
- Thus, the trader received 12 pips of profit, and the spread in this transaction was 2 pips.
This phenomenon can be compared with a currency exchange. Speculators make money on the difference between buying and selling, and usually these values differ from the prices of Central Banks. The broker, like similar organizations, lays down their commissions in the price.
Types of spreads at Forex brokers
Since this is a payment for the services of a broker, in order to attract new clients-traders and competitiveness, companies try to offer the maximum profitable terms by spreads. However, there are also some pitfalls to be aware of.
Not always low indicators of the difference between BID and ASA can become more profitable.
Spread | Description |
Fixed | The most common and typical. The rate is clearly described in the contract specification and does not change depending on liquidity. But increasingly, some brokers are warning that they may be forced to expand these numbers when important news comes out. At all other times, it remains unchanged, and the trader knows exactly how much he will have to pay when opening a position. |
Floating | This option is characterized by changing values under the influence of liquidity, as well as the situation on the market. Floats can reach 0, but can even expand to 30 points or more. Such options are preferred by traders working on scalping, that is, short-term transactions, on liquid pairs, where spreads should be as narrow as possible. |
Floating fixed rate | This type included the characteristics of the first and second options. The spread itself is floating, but its indicator cannot fall below a certain limit. The broker in their conditions usually indicates that the spread is floating from 0.9 points, for example. |
Many brokers in Lately to attract more customers, they offer to use accounts without a spread. Do not think that you will not have to pay, and all profit will fall on the balance. Brokers usually set a fixed commission for opening a trade, and not in points, but in currency, for example $10 for each open trade. They can also lay a certain commission in the Forex spread. And then at the conclusion of the transaction, you will need to pay a commission.
Accounts with no difference between the purchase and sale price will be most beneficial for those who prefer to trade in unstable market situations. In this case, the trader will protect himself from huge expansions with strong volatility, and the so-called "hairpins" that can nullify the deposit.
Alpari
Conditions at Alpari.
The most popular broker Alpari offers all three options:
- on the cent accounts traders can trade with a fixed spread;
- on professional floating rate;
- there is a floating spread with a fixed rate.
The broker warns that during the rollover, the spread may increase due to a decrease in liquidity. This also applies to the fixed rate.
Forex March
Conditions at ForexMart.
Broker ForexMart offers an account type without spread. But you have to pay a fee. It is fixed for each currency pair, and its meaning can be found in the contract specification.
InstaForex
Conditions at InstaForex.
InstaForex broker gives you the opportunity to use both fixed-rate and non-fixed rate accounts. When opening transactions on accounts without a spread, you will also have to pay a commission in the amount of 0.03% -0.07% of the transaction volume. There is a cent account with no spread, which will be of interest to a certain category of traders.
RoboForex
Conditions at RoboForex.
Broker RoboForex offers only two types of accounts. One of them is with a fixed rate of 2 points, the second is a floating rate with a fixed rate of 1.3 points. More detailed conditions for each currency pair can be found in the contract specifications.
Spreads in market situations
Spreads, especially those with floating rates, can widen and narrow depending on market conditions. This is important to consider in your strategy and trading plan. You need to know how these indicators behave, and how to select a certain type for the style of trading, so that after taking the difference on the deposit, zero remains.
- Floating spreads are not suitable for trading on important news and high volatility. For such situations, it is better to choose accounts without a spread, but with a fixed commission.
- For trend trading, spreads can be either floating or fixed.
- Fixed ones may not be profitable for trading on short-term deals, because by the time the breakeven point passes, the position will have to be closed.
- With trading volumes of 100-200 points, spreads can be completely ignored, because they will not play a big role.
- When buying a currency, it should be taken into account that the formation does not take place at the price that is displayed on the chart, and the cost will be slightly higher. Therefore, Take Profit should be set taking into account the spread. This pattern is especially important for intraday trading.
- The spread also depends on the currency pair. When trading on the euro / dollar, you can also not pay much attention to it, because the indicators here are very low due to high liquidity.
Do not forget about setting the Stop-Loss level. Here you also need to take into account the spread. In order for the sell stop loss to not work due to the difference, it should be set a little higher at the spread distance. Depending on the currency pair, this can be from half a point to 2.
Each trader will have to pay for the services of a broker. This is one of the main reasons why the choice of an intermediary must be approached very responsibly. Despite the fact that the spread does not play a decisive role in trading, it is important, and it must be taken into account not only in strategy, but also in money management.
Let's start with a riddle:
Ask and Bid were sitting on the pipe. Ask fell, Bid disappeared, what was left on the pipe?
The answer to this joke question is at the end of this article on the concepts of ask, bid and spread. And, you see, it is not at all funny when traders do not understand such basic terms. And by the way, analyzing bids and asks can be very helpful in identifying price reversals, as you will see below.
Before getting acquainted with the bid, ask and spread, let's remember such fundamental concepts as supply and demand. Sentence is the amount of goods that the seller wants to sell.Demand is the quantity of the product that the buyer wants to purchase.
According to the law of supply and demand,“ceteris paribus, the lower the price of a product, the greater the effective demand for it (willingness to buy) and the smaller the supply (willingness to sell)”
Let's look at an example of how supply and demand interact.
Suppose, somewhere in Africa, a prospector has found one of the largest diamonds. An interested buyer found out about this and will offer to buy this diamond for $1 million. The prospector took a couple of days to think. But the very next day, information about the find was leaked to the newspapers, and other interested persons appeared. The prospector received an offer to sell the diamond for $1.1 million, thus rejecting the price of the previous offer of $1 million. A little later, two more buyers appeared, offering 1.2 and 1.3 million, respectively. It turns out that demand has increased. The bid price is the bid price, or the price at which buyers are willing to buy a product. “Bid” in translation from English literally means - the offered price, offer
The next day, in the mines in Asia, prospectors found 10 of the same diamonds as a few days earlier in Africa. Immediately after the news of this came out, the price and demand for the African diamond fell due to the abundance of the same type of diamonds.
What is a bid
Bid price is the bid price or the maximum price at which the buyer is willing to buy the good. The buyer does not want to buy expensive. This is the logic of the law of supply and demand.
What is ask
Ask price is the bid price or the lowest price at which the seller is willing to sell the product. The seller does not want to sell cheap.
When there are factors that increase market value goods, the seller raises the ask price. The buyer accordingly understands that he has little chance of purchasing the desired product at the previous price, and is also forced to increase the bid. When the market price falls, the opposite happens. The transaction occurs only when there is a buyer who is ready to pay immediately the entire amount that the seller wants. Or the seller agrees to take as much money as the buyer is willing to pay.
What does it look like when trading on the stock exchange?
The figure above shows a 5-minute trading chart for oil futures on the Moscow Exchange. At the bottom of the chart, the Bid/Ask indicator is shown as a histogram. Pay attention to the behavior of the indicator on the upward price reversal from under the level of 80. Evaluate the indicator data at 17:20. The predominance of the green color indicates that more purchases were made on the market at the ask price (namely, 20918 lots were bought). For comparison, the sales at the bid price were significantly lower (the red bar is significantly smaller, to be exact - 6184 lots sold). As a consequence of this behavior, an intraday rally to the 80.80 level began.
The accumulation of purchases made at the bid price is one of the signs of the presence of enterprising large players. Download and install ATAS, observe the beginning of uptrends using the Ask/Bid indicator and you will see similar behavior on almost every day. The price levels at which such a pattern is formed often act as support levels in the future.
Another way to visually identify the imbalance of market buying and selling is to use Bid/Ask Imbalance when setting up a cluster (for more information about the Bid/Ask Imbalance cluster type, see
- Market (market order) - applications (orders) at the current price. These are orders of those who are in a hurry to buy / sell immediately at the best price that is on the market, that is, at the bid or ask price.Such orders will be fulfilled quickly.
- Limit (limit order) - applications (orders) at a predetermined price. If you are not in a hurry to buy and are ready to wait for a better opportunity to buy, your choice is buy-limit. For example, the plan is to buy at yesterday's low and sell-limit at yesterday's high. If both orders are executed, you will be in profit. But they may not be fulfilled if the requested price does not find those willing. Then the result from trading will be zero. But it is better than the loss from the price fall after the buy-limit is executed.
The relative value of one currency unit is determined in units of another currency. Exchange rate offered to a buyer who wants to buy a quoted currency is called a BID. This is the highest purchase price for a currency pair. And the price of the quoted currency for sale is called ASK, i.e. the lowest price at which a currency pair can be offered for sale.
BID is always lower than ASK. The difference between the ASK price and the BID price is called the spread. It represents a brokerage fee and replaces transaction fees. The spread is usually measured in points - one ten thousandth of the exchange rate.
Types of spreads on the Forex currency exchange
Answering the question: what is a Forex spread, you should talk about the types of spreads used in trading on the currency exchange:
- Fixed spread– the discrepancy between the ASK price and the BID price is kept at a constant level and does not change under the influence of market conditions. Fixed spreads are set by dealer companies for automated trading accounts.
- Fixed spread with expansion– one part of the spread is pre-set, and the other part can be changed by the dealer depending on the market.
- Variable spread– fluctuates as market conditions change. As a rule, the variable spread is at a low level when the market is passive (about 1-2 pips), but when the market is active and prices change quickly, the spread can rise to 40-50 pips. This type of spread is closer to the real market, which increases the uncertainty in the trading process and makes it difficult to create an effective strategy.
By observing the variable spread chart, you can determine the moments when the spread reaches its extremes - maximum or minimum. At the time of the minimum spread, a trader can simultaneously open buy and sell positions and later close them at the time of the maximum spread. As a result, the profit will be equal to the maximum spread.
This variable spread trading strategy has the advantage of low risk, because the probability of profit does not depend on the actual rate of the currency pair, but only on the size of the spread. Moreover, if trading position is open during the minimum spread, this guarantees a breakeven result and gives a high probability of earning.
What affects the spread in Forex
There are several factors that affect the spread. Most important factor is the liquidity of the currency. Popular currency pairs participate in trading with the lowest spreads, while rare currency pairs raise it dozens of times.
The next factor is the volume of the deal. Average trades are usually concluded with a small spread fluctuation. Trades of the minimum and maximum volume are concluded with a wider spread variation, the size of which will fluctuate depending on the risks involved.
Speaking about what a Forex spread is, it is worth noting that, in an unstable market, spread fluctuations are wider than in a market with stable conditions. The status of the client also affects the spread, as large-scale traders or premium clients receive personalized discounts.
The Forex market is highly competitive these days and when brokers try to stay close to their clients, spreads tend to be fixed as low as possible.
Important conclusions about spreads on the currency exchange
Every trader should pay due attention to spread management. The maximum result can be achieved only when all market conditions. successful trading strategy is based on an effective assessment of market indicators and specific financial conditions of the transaction.
Any asset traded on stock market always has two prices. The best price at which you can buy an asset at the moment, set by the seller. And the best price at which you can sell, put up by the buyer. The difference between these two ask and buy prices directly affects liquidity financial instrument, to put it simply, on the trading volume and is called the exchange or trading spread.
What is a trading spread?
What is a spread? Literally, from English. spread - translates as extension, difference. If plain language, is the difference between the buy and sell prices. For different assets, the spread value can differ not only by several times, by tens and even hundreds of times!
For example, consider the quotes for the shares of Gazprom. The DOM shows that the best sell price is 134.55 rubles, and the best buy price is 134.53.
The difference between them in 2 kopecks is the spread!
If you take another less liquid instrument, you can see a higher spread between the ask and purchase prices. For example, Qiwi shares. At the moment, the difference is 2 rubles, which is still good for such paper. Usually, for Qiwi, the standard spread is 5-10 rubles.
When making a deal on the stock market, the trader automatically receives a loss equal to spread. After all, an asset is bought at prices offered by sellers, so in order to quickly sell an asset, you need to look at the prices of those who want to buy, and they will be lower, just by the size of the spread.
If you made a purchase of Qiwi shares, then you need to wait for the quotes to increase by 5 rubles or 0.5% in order to just go to zero. Or quotes for Sberbank. Here, the difference between buying and selling is only 1-4 kopecks, depending on the market situation.
To compare the spread of different assets, it is better to use not absolute numbers, but relative ones, expressed as a percentage.
Let's say if two different stocks have a spread of 1 ruble. On the one hand - the same difference. But the cost of one share is 100 rubles, and the second is 10,000 rubles. It turns out 1% in the first case and spread = 0.01% in the second case. Consequently, the second shares are more liquid and profitable for trading.
Types of exchange spread
The trading spread can be of two types: fixed and floating.
Fixed, mostly found on foreign exchange market Forex, where brokers independently determine the difference between buying and selling.
Otherwise, floating spreads are used almost everywhere in the markets. Its size is determined by the current situation on the market and a specific asset in particular. And although at first glance its value is chaotic and is set by market participants, the size is tightly controlled by the exchange, namely by market makers, whose task is to ensure high liquidity of securities or not to allow too wide a spread. In exceptional cases, when quotes move too fast in one direction and the spread expands to an obscene level, the exchange has the right to stop trading on this instrument for a certain time.
A joke on the subject. How to identify a trader selling watermelons in the market? He has 2 prices on the counter: one for buying, the other for selling.
Why the spread expands or what determines its value
Why can the spread widen? At its core, the minimum difference between buying and selling is achieved when the number of people willing to buy an asset (buyers) and willing to sell it (sellers) is approximately the same. Thus, a balance of forces is observed, with a small error in one direction or another.
In the case when such a balance is broken and some players become much larger, then we observe an expansion between prices. Suppose, when everyone only wants to sell, and there are practically no those who are ready to buy at the moment, or their share in relation to sellers is negligible, then the spread will automatically expand.
When do these situations occur?
- during a crisis, when stock quotes simply fly to the bottom
- in the event of corporate news, both good and bad, when almost everyone will be set up the same way: either bullish or bearish
- based technical analysis when there is a trend change and reversal patterns are formed on the chart
Is wide spread good or bad?
As mentioned above, the smaller the spread, the more liquid the asset is, the more attractive it is for bidders. Less liquid instruments have low trading volumes, due to the lack of people willing to trade them. So a too wide spread is not good.
However, there are a number of trading strategies designed specifically for a large difference between the prices for buying and selling. And the greater this difference, the higher the potential profit traders can expect.
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