The Spread - Is it a cost?

Falken · Feb 23, 2009

Hi guys, this is a noob question indeed.
Is the spread a cost you pay your broker in each trade?
Lets say a stock is trading at 91-92 and I'm going in for
a long trade at 92 (the bid) Does that mean I have to pay
the price between the ask and the bid? Thats also have spread betting brokers make money?

I'm planning to open up an account with IGindex soon and I would
really like to understand this

Creds to the one who can explain the spread to a newbie!

Many thanks.

foredog · Feb 23, 2009

The spread is wherre the SB companies make money

If you buy (at the offer) 92

it goes up 5p you've only made 4p

price is 96 -7 and you'll sell at the bid 96

Falken · Feb 23, 2009

I see, thanks foredog. Is the spread an actually cost that is drawn from your account or does the spread simply just make you earn less money? The spread isn't something we PAY, right?

Thanks again.

foredog · Feb 23, 2009

The spread is not a cost like a commission but you still pay it every time you trade aswhen you open a position you will buy at the offer and if you sold immediately at the bid you would lose the spread

new_trader · Feb 23, 2009

Falken said:
Hi guys, this is a noob question indeed.
Is the spread a cost you pay your broker in each trade?
Lets say a stock is trading at 91-92 and I'm going in for
a long trade at 92 (the bid) Does that mean I have to pay
the price between the ask and the bid? Thats also have spread betting brokers make money?

I'm planning to open up an account with IGindex soon and I would
really like to understand this

Creds to the one who can explain the spread to a newbie!

Many thanks.

Well what do you falken think!?

Sorry, you probably get that a lot.

As foredog explained, the spread is the difference between the Bid price and the Ask price. The market price is defined as the Bid and Ask price combined, so if you were to buy@market and sell@market (and the market hasn't moved) then you have lost whatever the spread is + commission. In the real market (as opposed to spread betting) the spread isn't fixed. The spread for the ES in a very liquid market is 0.25 points, but sometimes it can be 0.50 and even 0.75 points sometimes more.

TheGoldenOne · Feb 23, 2009

Yes the spread is a cost that a trader must cover.

Falken · Feb 23, 2009

Thanks all

AlexisD · Feb 25, 2009

Theoretically, spread is not a cost,neither is slippage. But when considering your trading as a business, then yes, you'd better count it in as such.

raysor · Feb 26, 2009

In a way it is a cost. However who would buy and sell at the same instant?
It is possible that a millisecond after you deal the bid moves up to the old offer.
It is not worth worrying about unless it is avoidable. In the case of a 'penny' share the quote could be 1-2p
If you pay 2p you are effectively losing 50% of your money (on paper).

Falken · Feb 26, 2009

Ok Raysor. By the way, I'm planning to open an account with these guys: Impeo Markets - Home

Do they have a reasonable spread for daytrading US stocks? Their spreads seemed very tight when I traded with their Demo account. It says in their market information that their spread is calculated to a percentage, think it was 0,10%. What does this mean?

Reasonable or insanity?

Many thanks.

raysor · Feb 26, 2009

Falken said:
Ok Raysor. By the way, I'm planning to open an account with these guys: Impeo Markets - Home

Do they have a reasonable spread for daytrading US stocks? Their spreads seemed very tight when I traded with their Demo account. It says in their market information that their spread is calculated to a percentage, think it was 0,10%. What does this mean?

Reasonable or insanity?

Many thanks.

Sounds OK
I just checked one stock on IG looks like 0.2%

The Spread - Is it a cost?

Falken

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foredog

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Falken

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foredog

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TheGoldenOne

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Falken

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