In forex trading, the difference between the buying price and selling price of a currency pair is called the spread.
The difference between the buy and sell price is called the ‘buy-sell spread’ or ‘bid-ask spread’.
You can work out the spread of a currency pair by looking at a forex quote. The quote shows the bid and ask prices.
A high spread means that there’s a big difference between the bid and ask price. Whereas a low spread means that there is a small difference between the bid and ask price.
The spread is measured in points. A point is the smallest amount a currency price can change.
Leverage works a bit like a loan. Leverage lets you borrow money from a broker so that you can trade larger amounts of currency.
You have to put down a small deposit, called a margin. And the broker will top up your account with the money you need to make a trade.
Using leverage can help increase your profit if the investment is successful.
The larger the lot size of currency you trade increases the risk of you losing money if the currency goes down in value.
If you lose more money than your initial deposit, your account could go negative and your broker may ask you to repay it. Before using leverage you should fully understand the risks involved, and what you could end up losing. This is because compared to standard trading, the risks are magnified and you can stand to lose more than just your initial deposit, which could be money you can’t afford.
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