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“Two welcome back everyone i m. Rob booker. Best selling author of adventures of a a currency trader. I bet you re tired of hearing.
Me say that i think ll stop doing that we talked about pip value. We talked about account sizes. We talked about a bunch of stuff. We are going to talk about nwhat those trade sizes mean and how much money each.
Pip is worth before. We do that i wanna talk about fx spreads and commissions. This is the way. The broker.
Makes. Money is by charging a spread and in some cases. Charging a commission on each trade now when you pull up your trading. Account.
And you pull up the quote window and you re about to take a trade on the right side is the buy price and on the left side is the sell price. I m gonna look at it on the slides. So you could see it even better so if you re looking at a quote for the us dollar japanese yen it might look something like what we re seeing on the chart. Right here.
10690. 10692. Now the price at which you can buy. It is over here on the right nthey might call that the ask i just call.
It the buy price n. cause. If you hit that price that s the price that you can buy it at now if you buy it at. 10692 you can immediately.
Sell. It at. 10690 now if you. Buy.
It. Nate at. 10692 and immediately sell it for 10690. Have you made money or lost money.
Nate lost money you ve lost money. That s because the nbroker charges a spread you re gonna start your ntrade off at a loss the broker got the dollar japanese yen in their inventory for 10690 and they re letting you buy nit from them at a markup of 2. You may actually hear the term markup in the world of fx dealers. That s a word for spread markup if you sell a used car to a used car dealer and then they sell it to someone else they buy it from you nthey mark up the price and then they sell it that s the markup.
The spread is the markup. It s the way that the ndealer makes their money okay so when you re reading a. Quote you can hit the buy price at 10692. Thinking.
The us dollar japanese nyen is going up. And then you can wait til. These ntwo prices start to climb and then you can get out of the trade at. Hopefully what is a higher nnumber later on than 10690.
That s the spread you always nhave to pay the spread that s the cost of doing nbusiness in currency trading. Now there are times. When a broker. I m gonna use c.
As the terminology may give you a tighter or lower spread. So it s easier to get nyour trade. Into profit they may. In fact give nyou a spread of 10690 and 10691.
That makes it easier to get your trade into nprofit. Much more quickly. The market doesn t have to move as far. They may do that by ncharging you a commission a small commission on each trade equal to a fraction of your trade size.
It s usually very reasonable. It s not a problem that na broker or a dealer offers you an account with a commission that can give you a tighter spread better execution and nit s not a bad thing. But that s how they make their money they make their money nby charging. You a spread and in some cases.
A commission so the spread on the euro us dollar might look something like this 12900. And if you hit this price you can sell it or bet. That it s going nto go down at that price the spread on a euro might nbe three pips higher. So if you sell it at 2900.
You are immediately going to be in this case. Nate. How many pips down will nyou be immediately. Nate three.
You ll be down immediately three. So it s not uncommon for you to see a small loss in your account. Nwhen. You first take that trade and that s fine in order nfor you a sell trade if you initiate a sell ntrade you re just betting that this euro dollar s gonna go down.
That s all you re doing and if it falls both of nthese numbers are gonna drop and this is the price you can nhit to get out of your trade. You gotta buy it back if you sold it to start nyou gotta buy it back if you bought it to start you gotta sell it to get rid of it and that s just how this works you re betting that something s ngotta go down on this side and you re betting. That s nsomething s gotta go up on this side. There s always gonna be a difference between those two prices nand that s the spread.
And that s how your dealer makes money now. People talk about tight spreads as a reason to trade with a dealer generally speaking. Most of the spreads are going to be very similar across all the fx dealers around the entire world right now. Here s a little nugget of wisdom that most people won t talk about there s so much money ninside of the spread.
There might be two pips nthere might be three. Pips there might even be just 15. Pips. The spread s gonna be that wide these brokers will in some ncases pay out rebates sometimes i ll talk to nate here.
cause. He s sitting. With me. Hey.
Nate nate hello. And a rebate is a nlittle. Bit of the spread returned back to the customer in exchange for opening up the trading account or returned back to someone nwho referred the customer. It s a little kick back.
So there s money built into the spread for the dealer to compensate. It s partners or even send money back to you nand those are called rebates. So you can actually get nsome of these spread back on a monthly basis. Even nfrom your fx dealer or from an introducing broker as part of the whole ninterworkings of all this.
Nate did any questions come to mind. This is often a complicated topic. Did you think of any questions nas. We were discussing this nate no i wanna say nwhat is a pip worth.
But all right so what s a pip worth well that s our next lesson. So well wrap things up here and as we do i wanna say thank you to nour. Sponsor forest park fx. Interested in fx training.
Contact forest park fx to open an account and nreceive cash back rebates on every trade you place go to forestparkfxcom. Forex trading carries a nsignificant risk of loss. And it s not suitable for all investors terms and conditions will apply. I m.
Rob booker. Thanks nso much for being here. ” ..
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