These techniques are particularly important when using forex leverage. While risk cannot be completely removed, there are some risk management techniques that traders can use to hedge risks.
However, every opportunity is accompanied by a degree of risk. The forex market offers significant opportunities to make profits. For new traders looking for more certainty, some of the leading brokers offer fixed spreads. It can vary, at times dramatically, depending on volatility in the market. Remember, the spread is not constant in a market and not consistent for any particular currency pair. Spreads in stock trading are typically much higher than spreads in forex trading. The lower, or tighter, the forex spread, the more liquid a market is said to be and the lower the implied cost of trading. In the above example, the forex spread is 1.1751 – 1.1749 = 0.0002, or 2 pips. The difference between the bid and ask prices is known as the forex spread. So, if you buy €1, you will need to pay US$1.1751. The second figure (to the right) is known as the ask price and represents the minimum price at which the market is willing to sell the US dollar. So, if you sell €1, you will receive US$1.1749. The first figure (to the left) is known as the bid price and represents the maximum price at which the market is willing to buy the US dollar. For instance, the EUR/USD exchange rate may be displayed like this: 1.1749 / 51 or 1.1749 / 1.1751. You may notice, however, that in forex trading, price quotes on trading platforms are showed with two rates not just one.
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