EurUsd Spread

EUR/USD Spread Ranges
An important thing to remember when trading the EUR/USD is when to trade so you can minimize the spread. The spread is not constant when trading forex unless it is a “fixed spread”, therefore we must take some things into consideration. One thing to keep in mind is ‘market liquidity’, which is the volume of trades flowing through the market at any given time. If the market is highly liquid, the spread will be tighter, thus making it a more profitable time to trade.

Another thing to consider is the expectation of volatility. Traders may expect a volatile market with the announcement of events such as big news announcements like interest rate increases, and various data releases. In events like these, the spread tends to widen out, thus resulting in higher fees imposed on traders. For instance, the spread could vary between 1-50+ pips when trading the EUR/USD currency pair. However, the average spread a trader should be trading at when trading the EUR/USD should be between 1-6 pips.

While the EUR/USD currency pair has relatively low spreads, the broker plays a big part in how wide or narrow spreads are. Some brokers will offer very tight spreads, while at the same time other brokers will have wider spreads. This is an important factor to consider when choosing a brokerage to deal with. Some brokers may seem great and offer many benefits with low costs, but will then have very high spreads to make up for their costs.

Understanding Value Of The Spread
The calculation of spread may seem quite difficult and confusing to some, but it is really quite simple. The first step to understanding this calculation is to know what’s involved.

First off, for the following to come, let’s use a EUR/USD currency pair spread example.
Let’s say you are buying the EUR/USD at 1.1200 on a trade for 100,000 currency units. You would then need to pay $112,000 USD, (100,000*1.12) for 100,000 EUR.
Now, you need to know what a pip is. The pip is the smallest price movement in any exchange rate, usually the fourth decimal placement in currencies. For example, if the currency quoted price changed from 1.1200 to 1.1205, the change would be 5 pips.
Next, we need to understand the value of the pip. To do this, we must divide one pip by the current exchange rate, then multiply it by the amount of the trade. When doing this the pip must be in decimal form, (0.0001).

Based on the example above: ((0.0001/1.1200) * 100,000) = 8.93 euros.

Therefore, the value of one pip is 8.93 euros.