How a broker earns on Forex

Forex is the largest and most liquid market in the world. It can be a great source of income, on one condition: you have to know the rules. In this article I would like to talk to you about spread.

In Forex, spread is not what you hear about on the news (thankfully! especially if you heard about it in 2011).

The spread they are talking about is the yield spread between German government bonds in respect to Italian ones. The spread that I am talking about is instead something much more concrete. It is something that if you want to trade will become part of your daily routine.

Look at this image: paste in graph

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As you see there is no one single price ( this goes for all markets, Forex, Options, Futures, stocks, etc …) but there are always two prices: the higher price at which the broker makes you buy and the lower one at which the broker makes you sell. Never forget: you will always buy at the higher price and will always sell at the lower price.

The spread is simple the way in which the broker puts your order on the market (in a way that always includes a gain for him). Many people believe that when you open and close a transaction quickly, the price applied for the sale remains the same as the purchase price.

In fact, many people are convinced that in this case the trade has not resulted in either a loss or a profit, because the price has not moved. Obviously this is not the case.

Look again at the graph above: if you buy, the broker will apply the higher price and if you want to close the deal, the broker makes you sell at the lower price. If you buy and the price goes down you lose money.

Now you’ve discovered two things:

1. Why does a broker want to be a broker. Try to think about the amount of trades a broker manages every day. Each one of these trades equals a small profit for him.

2. Every time you put a trade on the market the trade starts at a small loss.
This ‘little amount’ is what the broker has taken from your account: and I do not need to tell you that the lower and narrower the spread, the better it is for the trader!

AB Forex is the only course in Italy that teaches you how to invest in Forex and earn a lot of money! Even starting from zero!

To your financial freedom!

Alfio Bardolla

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