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

    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."

    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 >

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

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