shanmugapradeep
Corporal
- Messages
- 86
Hello,
In a zero spread account, brokers charge a commission. For example, in one broker I use, for 1 standard lot, they charge $7 as commission for EURUSD.
If I place a Buy/Sell trade with $1 lot on EURUSD, for a profit of 3 pips, it will be $30 - $7 = $23, and for a loss of 3 pips, it will be -$30 - $7 = -$37.
This is simple and easy.
With spread, brokers maintain a price difference between the Bid (Sell) and Ask (Buy) prices. So, if I place a Buy trade, it gets placed at the Ask price, and if I place a Sell trade, it gets placed at the Bid price.
Bid Price: 1.100
Ask Price: 1.200
If I place a Buy trade at the Ask price of 1.200 with 1 standard lot and make a 3 pips profit on EURUSD, then my profit will be $30, and vice versa for a loss, which will also be $30 (3 pips).
If I place a Sell trade at the Bid price of 1.100 with the same 1 standard lot and make a 3 pips profit on EURUSD, then I make the same $30 profit or $30 loss.
The difference is, in profit, I make $30 (account with spread) and $23 (account with zero spread). In loss, I lose $30 (account with spread) and $37 (account with zero spread).
So, if I am correct, then it is always good to use an account with spread. But why do most people prefer zero spread accounts?
In a zero spread account, brokers charge a commission. For example, in one broker I use, for 1 standard lot, they charge $7 as commission for EURUSD.
If I place a Buy/Sell trade with $1 lot on EURUSD, for a profit of 3 pips, it will be $30 - $7 = $23, and for a loss of 3 pips, it will be -$30 - $7 = -$37.
This is simple and easy.
With spread, brokers maintain a price difference between the Bid (Sell) and Ask (Buy) prices. So, if I place a Buy trade, it gets placed at the Ask price, and if I place a Sell trade, it gets placed at the Bid price.
Bid Price: 1.100
Ask Price: 1.200
If I place a Buy trade at the Ask price of 1.200 with 1 standard lot and make a 3 pips profit on EURUSD, then my profit will be $30, and vice versa for a loss, which will also be $30 (3 pips).
If I place a Sell trade at the Bid price of 1.100 with the same 1 standard lot and make a 3 pips profit on EURUSD, then I make the same $30 profit or $30 loss.
The difference is, in profit, I make $30 (account with spread) and $23 (account with zero spread). In loss, I lose $30 (account with spread) and $37 (account with zero spread).
So, if I am correct, then it is always good to use an account with spread. But why do most people prefer zero spread accounts?
