Why it is necessary to keep Spread in Forex trade to the minimum?

The Spread is an inevitable part of the forex trade and it is the basic difference between the buying and selling price of a currency pair in a foreign trade. The difference in the BID price and the ASK price defines a Spread. For example, a trader X buys the EUR/USD for 1.75340and is selling at the price of 1.75352, the difference 1.2 PIPS is the Spread. The lower the Spread, the better.  This way, he can reduce the amount to be paid to the broker for a fee. In other words, the Spreads are the remuneration a forex broker receives for the services rendered by him.

Usually, a noob trader will not understand what is a spread and tend to trade on the currency that others say is good for him. Till the time he knows the tips and tricks to trade better, it is quite natural for anyone to lose some money by trading in currency pairs that have higher Spreads. Before deciding on which one pair to trade, the traders must analyze whether the money they pay as a charge is worth the trade or they have to avoid trading, altogether.

An important point you should take into consideration is that the one pair with the lowest spread is not always the best pair to trade with. Basically, the Spreads of the currency pairs that are traded widely in the market vary constantly at irregular intervals. For example, EUR/USD currency pair is highly volatile and the Spreads vary constantly. Recent happenings around the country will also have an impact on the trade. So a forex trader should factor in the economic and political changes happening in the country failing which, he has to suffer heavy losses. Keeping Spreads to the minimum means you try to increase your profit potential.

In short, the term Spread means the difference in the purchase (BID) price and the selling (ASK)price of the respective currency pairs you have chosen to trade with. To put it differently, it also signifies the fee paid to the brokers for each and every transaction the trader makes in the forex market. The Spread will be higher if you make a lot of transactions and vice versa. You need not trade in a currency pair that has high volatility. The pair that shows high fluctuations at some point in time can be stagnant at some other point in time of the trade. A trader should be prudent enough to choose the pair that can help him earn a higher profit with lower Spreads.