Tight Spread works?

Written by Research | 17 November 2010

Tight spreads between bid / ask can be summarized as competitive pricing specially when it involves a fifth decimal price movement. This is more to the advantage of the average term traders who values each point whenever the leverage amount is substantiallly high. As they say every point counts! This trading style may work for some, but may not suit the others.

Tight spreads between bid / ask can be summarized as competitive pricing specially when it involves a fifth decimal price movement. This is more to the advantage of the average term traders who values each point whenever the leverage amount is substantially high.this is where interbank traders who manages a huge amount of leverage trades and volume do look after their spreads upon entry and exit points.However, in some cases it does matter as it wither makes or breaks a trade especially for short-term traders.

It was only in the most recent decade that newer trading technology ahve adapted the fifth decimal point as a way to tighten the spreads between the currency pairs. Although, there is no assurance that the tight spread would exist during a rapid market movement which happens to be fundamentally fueled making a gap or huge difference between bid and ask prices.And this proves to be true even on the most sophisticated trading platform where requotes often occur during such extreme price action.

In normal market conditions between the opening sessions between the three different time zones; spreads between the major pairs are tamed. However, most traders who happen to be more familiar with this situation would normally take advantage between the weeks's closing and opening prices. Which one may find some discrepancy in prices between the closing prices of US (New York) and Asia (Japan) opening sessions.Although, these also occurs during end of trading sessions between the three major markets.

Relatively,concentrating on the spreads can be very taxing at times but the more important issue of spread trading between other foreign currencies with the majors by utilizing cross rates, options and other foreign based currency trades may prove to be more useful. The irony of the matter is that it takes a little more sophistication and quite an expensive investment to be able to fully incorporate these strategies in the trading. As for the speculative trading its a lot simplier as investors simply try to speculate price trends in the event of making some money in exchange for the risk of loss while doing so.

With the current market conditions, the price fluctuations are even so wide that more trades done in the Foreign currency market could easily be taken out in a short notice.A trader may eventually get a good price and spread but would not do well in staying on the trade as it would be taken out quickly due to the wide trading range. So considering the finer points of trading the forex market, the spreads between the bid/ask would be dependent upon the market conditions where liquidity, volumes, general market sentiments do play a greater role as demand and supply factors weighs-in on the prices. Not to mention the technical and fundamental factors that also influences these prices and traded worldwide.