FxNews – This article discusses the advantages of focusing on low-spread currency pairs in Forex trading.
Forex trading involves buying and selling currencies. The difference between the price you buy and the price you sell is called the spread. Think of the spread as a small fee you pay to open a trade. Pairs with low spreads are often preferred because they’re more cost-effective, especially for traders who make frequent trades. Every little bit of the pip movement can make a big difference!
Breaking Down Spreads
So, what exactly is a spread? It’s simply the difference between your broker‘s price and the market price for a specific currency pair. In other words, it’s the gap between the bid price (the price someone is willing to pay for the currency) and the asking price (the price at which someone is willing to sell). Every broker charges a spread on their assets.
Popular Low Spread Currency Pairs
EUR/USD: The EUR/USD pair is among the most traded currency pairs, with spreads starting from as low as 0.1 pips. It makes up about 20% of the total Forex trading volume. The spread for this pair can vary from 0.1 to 3 pips, depending on your broker. If your broker offers fixed spreads, they usually range from 0.3 to 5 pips (excluding commission).
For example, you’re trading EUR/USD with a broker offering a spread of 0.3 pips. You’ll earn three pips if you buy one lot (100,000 units) of EUR/USD at 1.2000 and sell it at 1.2003. But since your broker charges a spread of 0.3 pips, your net profit would be 2.7.
USD/JPY: Next up is USD/JPY, which has the second-lowest spread among currency pairs. This pair represents two major economies: Japan (an exporting country) and the US (a big importer). The variable spread for this pair ranges from 0.2 to 2 pips.
Here’s an example: if you’re trading USD/JPY and buy at 110.00 and sell at 110.02, you’ll earn two pips. But if your broker charges a spread of 0.2 pips, your net profit would be 1.8.
GBP/USD: Lastly, we have GBP/USD, another low-spread pair known for its large movements due to the volatility of the British pound. This pair offers excellent liquidity and low spreads, making it ideal for specific low-spread strategies that may not work with other pairs.
List of Low-Spread Currency Pairs
| Symbol | Full Name |
|---|---|
| EUR/USD | Euro / U.S. Dollar |
| USD/JPY | U.S. Dollar / Japanese Yen |
| GBP/USD | British Pound / U.S. Dollar |
| USD/CHF | U.S. Dollar / Swiss Franc |
| USD/CAD | U.S. Dollar / Canadian Dollar |
| AUD/USD | Australian Dollar / U.S. Dollar |
| NZD/USD | New Zealand Dollar / U.S. Dollar |
Wrapping Up
In conclusion, trading with low-spread pairs like EUR/USD, USD/JPY, and GBP/USD can help minimize costs and maximize profits in Forex trading. These pairs have low spreads due to both currencies’ high liquidity and large trading volumes.