The Effect of Increasing Spreads on Your Forex Trading – Trade during important market events like NFP? Trade enhancement is an important circumstance that is very important to pay attention to when choosing a broker, as it has a huge impact on your profitability and overall performance.
The Non-Farm Payroll (NFP) is one of the most moving data on the Forex market. The release of this monthly employment report is one of the most closely watched agendas for Forex and CFD traders. This report is used by investors to assess the health of the US economy and can have a major impact on the USD pair. Therefore, many traders have started to prepare for the NFP since days before. They scour all the preliminary data for hints about the upcoming NFP report. Strong NFP data is a convincing indication that the economy is developing, and vice versa.
Why is NFP Popular Among Forex Traders?
In Forex trading, the biggest impact comes from actual non-farm employment data compared to estimates. If the actual NFP is higher than economists projected, forex traders will usually buy US Dollars in anticipation of the currency’s appreciation. The opposite will happen if the actual data is lower than economists’ expectations. Every forex trader must have a trading strategy at the time of the release of the NFP report, as this is the most volatile and potentially the most profitable period of the month.
Bigger market movements usually become opportunities for bigger trades. However, we need to note that there are a number of parameters that can have a significant impact on your profit and loss, beyond just guessing in the wrong direction. BDSwiss Principal Analyst and professional trader with more than 15 years of experience, Alexander Douedari, says: “Widening spreads during data releases and important events like NFP can limit your profits and increase your losses. Therefore, you should pay close attention to the trading conditions your broker offers you. Apart from raw spreads, you need to look for a broker with more limited spread widening, faster execution, and lower price slippage. “
What is Spread Increase and How Will Spreads Affect Your Profits?
The spread is the difference between the buying and selling price of the underlying CFD asset, or what is commonly called the bid and ask price. The difference between the bid and ask is the profit the broker will get on your trades, whether your position is a profit or a loss. The spread can be viewed as a trading fee for placing a position; tighter or lower spreads will reduce your trading costs so that the profit will be bigger or the loss will be smaller, after you close the position.
Alex said: “During high volatility events, spreads tend to increase, and of course trading becomes“ more expensive ”at that time. However these events have a higher risk / reward ratio, so they are very popular among forex traders. As the spreads increase, your stop loss can trigger even before the price starts trending, and this can seriously mess up your positions. Therefore, we really need to study the increase in spreads of a broker during high volatility events or agendas before trading with real funds. “
Higher Spreads Mean More Costs
Higher spreads mean higher trading costs. Because of this, professional traders look for forex accounts that guarantee fixed spreads or variable raw spreads. Raw spreads usually start at 0 pips and are provided directly from the broker liquidity provider. This means that your broker will not be able to manipulate the spread and make it even higher. However, spreads may vary from broker to broker, depending on the broker’s liquidity provider.
Therefore, we need to choose a broker that offers access to deep liquidity through high-end providers that offer very competitive spreads. This can help reduce trading costs significantly, so that profits can be even greater and losses can be reduced. Of course, competitive pricing is not the only factor that guarantees lower trading costs. There are other factors such as latency, execution speed, and price slippage that also come into play.
More Than Just a Raw Account
Finding the right broker is the key to your success as a trader. “The mainstay combination in forex trading is tight spreads, lowest slippage, instantaneous execution, no commission, and no markup. Very few brokers in this industry can offer such trading conditions, so BDSwiss to be one of the most superior brokers as a choice of partner traders, “said Alex.
$ 10/ min BDSwiss Forex Broker, Min Deposit $ 10, Min Trade 0.01 Lots, 1: 500 Laverage, 0.3 Pips Spread BDSwiss Reg
With more than 1 million registered clients worldwide, BDSwiss is a leading Forex and CFD financial institution offering highly competitive trading conditions, including deep institutional liquidity for increased minimum spread in times of high volatility, no markup, no commission, and extraordinary execution speed namely 10 milliseconds. The revolutionary raw spread account BDSwiss even offers trading with spreads from 0 pip on all forex and gold instruments, for a low monthly subscription fee. Thus, all traders regardless of account size can take advantage of institutional trading conditions with lower trading costs.
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Risk warning: Trading in Forex / CFD and Other Derivative Products is highly speculative and involves a high level of risk. You may lose all your invested capital. These products may not be suitable for some people and you should ensure that you fully understand the risks involved. Seek independent advice if needed. Make sure you are ready to bear the loss of any funds you bet.