Currency Exchange Rates

Currency exchange rates used in currency trading by the market makers are offered in two-directional quotes, one to buy currency and one to sell currency. The difference between the two is called spread and it is the main way many brokerages make their trading profits.

Spread is an important concept, because the wider the spread, the more you lose if you have to immediately buy and then sell a currency, or vice versa.

Currency Exchange Rates – Spread

Spread between the buy/sell exchange rate quotes is one of the most important competitive factors between brokerages. That is why many brokerages advertise very tight spreads between the main currency pairs.

Keeping spread tight is made easier if there are many market participants making simultaneous offers to buy and sell currency. Also, the size of the orders plays a role in liquidity of the market.

If the spreads are not tight enough, brokerage that acts as a market maker has to ensure that the rates are competitive by making offers to buy and/or sell within tight spread ranges.

You can expect to get tight spreads for the main currency pairs, such as EUR/USD, USD/JPY, or GBP/USD.

Spreads are wider for currency pairs that are not in high demand. The less there is demand for a currency pair in interbank trading, the wider the spread will be.


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