Spreads – Coinstec

The spread is your cost of implementing a trade and closing a trade.

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Understanding spread is very important as they are a cost, but they are minimal and competitive.

When you are looking at a digital currency pair there is the current price but this is not the price that your broker is offering to open the trade for you at. There is a small difference known as a bid and an ask price. A full quotation is made up of 2 prices called the Bid and the Ask. The difference between these two prices is referred to as the 'Spread'.

The spread is essentially the profit a broker or bank makes for you to enter the trade (your transactional cost). The wider the spread the more expensive it is for you to trade, whereas the thinner the spread the cheaper it is to enter the trade.

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Large and frequently traded currencies usually enjoy a small bid-ask spread while small and infrequently used currencies have a large bid-ask spread.

These prices are easily distinguishable on the COINSTEC™ trading platform. A spread is simply defined as the price difference between where a trader may purchase or sell an underlying asset. Traders that are familiar with equities will synonymously call this the Bid: Ask spread. Since the spread is just a number, we now need to know how to relate the spread into Dollars and Cents. The good news is if you can find the spread, finding this figure is very mathematically straight forward once you have identified pip cost and the number of lots you are trading.

To understand it in everyday terms, imagine you are going on holiday and need to change your local currency into the currency of the country you are going to visit. Let’s say you live in Europe and have Euros and you are going to the US on holiday. When you go to the bank or the currency stall. There is a price listed that they will buy euros from you or that they will sell euros to you. This is the spread, it is the difference that the bank makes its money. Since the difference or the spread is small and competitive most traders pay little attention to it. Just remember when you look at the platform, you will see a buy and sell quote or a bid and ask quote. This is the price that your trade will be opened at. When you close your trade you also have to cover the spread.

In CDF trading you close your position by going the opposite way of when you opened your position. The difference between the open and the close position are your profit or your loss.