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Dumb question about spread

  • #1
  • First Post: Feb 17, 2018 12:27pm Feb 17, 2018 12:27pm
Hello guys, i wonder if someone know how the spread works.

Say that ive got 1 pip spread on EURUSD, do I pay that 1 pip twice on one trade? Once i buy, and once i sell ( take profit) ?

So lets say i scalp EURUSD and target is 2 pip, will my profit be 0?

Or is the 1 pip totally, and i pay half on entry, half on take profit, and totally 1 pip?
  • #2
  • Feb 17, 2018 5:17pm Feb 17, 2018 5:17pm
Approaching your question from a different angle gives a better understanding.

With a 1 pip spread - in the moment you buy from the broker - you are immediately in -1 pip "loss". In other words: If you changed your mind about the trade IMMEDIATELY and closed your position, you lost 1 pip, i.e. the spread.

So the total cost of any "roundtrip" trade is the spread itself (not considering extra commission). You could also say that you pay "half on entry and half on exit".

Using your example: With a 1 pip spread you need +3 pips favorable move to achieve +2 pips net profit.
  • #3
  • Feb 17, 2018 11:43pm Feb 17, 2018 11:43pm
Quoting RoboSeer
Approaching your question from a different angle gives a better understanding. With a 1 pip spread - in the moment you buy from the broker - you are immediately in -1 pip "loss". In other words: If you changed your mind about the trade IMMEDIATELY and closed your position, you lost 1 pip, i.e. the spread. So the total cost of any "roundtrip" trade is the spread itself (not considering extra commission). You could also say that you pay "half on entry and half on exit". Using your example: With a 1 pip spread you need +3 pips favorable move to achieve...

Thx so much for this answer, was exactly what I was looking for!
  • #4
  • Feb 18, 2018 7:53am Feb 18, 2018 7:53am
Bid-Ask Spread
A full quotation is made up of 2 prices called the Bid and the Ask. The difference between these two prices is referred to as the 'spread'. The spread is essentially the profit a broker or bank makes for you to enter the trade (your transactional cost). The wider the spread the more expensive it is for you to trade, whereas the thinner the spread the cheaper it is to enter the trade.

Large and frequently traded currencies usually enjoy a small bid-ask spread while small and infrequently used currencies have a large bid-ask spread.
The spread becomes more important to traders who trade frequently, such as an intraday traders or scalpers. However the spread is less important the higher the timeframe you trade.
Attached Image (click to enlarge)
Click to Enlarge Name: bid-ask_spread_1.png Size: 21 KB



Here you can see the bid-ask spread when you open a deal ticket within MT4. You wish to go long (buy) EURUSD and open an order window

Long positions


  1. The quotation reads: 1.36298 / 1.36301

  2. If you buy you will enter the market at 1.36301


Short positions


  1. The quotation reads: 1.36298 / 1.36301

  2. If you sell you will enter the market at 1.36298

In both circumstances your entry price on your P/L (profit loss) will be negative as the spread has been attached to your order. The market will have to move in your favour by the distance of the spread in order for your P/L to become zero.

It never gets easier, you just get better
  • #5
  • Feb 20, 2018 2:10pm Feb 20, 2018 2:10pm
Quoting Rgrg
Hello guys, i wonder if someone know how the spread works. Say that ive got 1 pip spread on EURUSD, do I pay that 1 pip twice on one trade? Once i buy, and once i sell ( take profit) ? So lets say i scalp EURUSD and target is 2 pip, will my profit be 0? Or is the 1 pip totally, and i pay half on entry, half on take profit, and totally 1 pip?
Hi,
It's not a dumb question, to understand all you can about the mechanics of trading before you start is sensible preparation.

If you are thinking about scalping, realise well that spread costs are a high cost hurdle to overcome in this form of trading. If you have a 1pt spread and 3pts for both stop loss & profit target, then a winner nets 2pts and a loser -4pts. You require a 67% success rate just to break even. And you will get slippage (dealing prices worse than planned) so you're probably facing 75% required break even success rate in practice. This is too tough, I promise you.

As a rule of thumb, you want your desired profit to be at least 10x the spread to give yourself a realistic chance of overcoming spread costs. As an example, I trade intraday for a 10pt initial profit target on a 0.6pt spread cost, and I really wouldn't want it any worse than that.

Best of luck!
  • #6
  • Jul 15, 2018 10:23pm Jul 15, 2018 10:23pm
When you enter the market you'll immediately lose based on your broker spread. So if you're scalp 2 pips..you have to wait until the price reach your target.
  • #7
  • Last Post: Jul 19, 2018 7:20pm Jul 19, 2018 7:20pm
To hit price targeted, we have to wait. So scalping for such a small amount is risky.
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