BID/ASK spread , a NO-cost factor ?!

Discussion in 'Trading' started by fluttrader, Nov 29, 2008.

  1. I had a discussion with austinp about this already

    http://www.elitetrader.com/vb/showthread.php?s=&threadid=126326&perpage=6&pagenumber=6

    then I stumbled on an article of him that says the same thing

    "A bid/ask spread in either case is never actually "paid" by any individual."

    http://www.tradingmarkets.com/.site/forex/how_to/articles/Some-Truths-About-FX-78176.cfm





    It is correct that there is no seperate debit in your account for the spread cost as there is for commissions BECAUSE the spread is a HIDDEN cost.
    A bigger spread means you pay a higher price when you buy and get a lower price when you sell.

    Example: forex broker A with 1 pip spread , forex broker B with 3 pip spread

    A : EUR/USD 1.5001/1.5002
    B : EUR/USD 1.5000/1.5003

    going long at 1.5002 with A
    going long at 1.5003 with B

    market goes up 10 ticks

    A :1.5011/1.5012
    B :1.5010/1.5013

    sell at 1.5011 with A > +9 pips profit
    sell at 1.5010 with B > + 7 pips profit

    Difference in profit is 2 pips > spread difference between broker A and B.

    If the spread is 1 pip then it takes a 1 pip move in the market to overcome that cost.

    The typical spread cost for futures is double the commission cost so it's an important cost factor to overcome.
    ES : spread $ 12.5 commission $5

    a good article >
    http://www.theessentialsoftrading.c...rstanding-the-bidask-spread-in-stock-trading/


    If it's not crystal clear by now....



    Even an expert as you can still learn some basics from a noob as me :)