Forex Spread Widening Is Normal
Forex spread widening is a common occurrence and takes place more often than you may be aware of. Many traders have been caught off guard especially those that have not been informed and they choose to blame their brokers for it.
Traders need to understand that Forex spread widening happens when:
- Volume and liquidity are low
- Around rollover
- Market open
- Increase volatility ahead of important news such as interest rate decision and latest employment numbers. Example of such news, US non-farm payroll, GBP official Bank Rate, AUD cash rate.
Dealing With Forex Spread Widening
Traders that are not aware of such occurrence then blame it on the broker manipulating the price and hunting their stop loss. It is important that as a trader, you need to know the timing of such happening and to avoid getting caught in these movements, you can:
- Avoid trading during those time
- Remove any pending trades.
- Wait for spread to normalize then start trading again. Usually doesn’t take long for that to happen unless it has something to do with the really major news such as SNB removed their peg to the EUR on Jan 15, 2015.
Another risky option which I do not recommend is you may want to get into the thick of action during times of increased volatility but be prepared to experience slippage, widened spreads, platform freeze and higher risks. And you should not blame it on your broker for unexpected losses during this period unless you have a valid reason to.
You may be able to trade some of those important news using fixed spread account offered by some brokers but I must warn you that not all fixed spread account work during those time though. For those that you can use to trade during news release, don’t be surprised if you encounter slippages and platform freeze among others. And do use video to capture your trade during that time so you have evidence to contest any claim or discrepancy after.
How Do You Know If Your Forex Spread is Widening?
Open a demo to test out your broker first but I must warn you that demo trading is not the same as live trading!
A better option would be to go through the procedures and open a Live account. Download the MT4 which is my preferred trading platform and probably many others. Look at the spreads of the currency pair that you are planning on trading with this broker during different timing. There are times when spreads will be lower with more liquidity in the market.
To see how much spread widens during critical news release such as US non-farm payroll, GBP official Bank Rate, AUD cash rate.
Hit F9 (place new trade) in the MT4 and a pop window will appear to place a new order, leave that window open and capture a video of the spread widening before, during and after the news. You can slow down/pause a video to see the numbers movement and calculate the difference. Watching the movement and doing mental calculation as it happen, you will not be able to capture the whole scenario.
Hope my views about Forex spread widening is normal helped make some sense. Good luck and safe trade.