How to overcome the wide bid ask Spread
You can’t avoid paying the Spread in Forex.
But you can work around the bid ask Spread.
And here are 2 ways to do it:
- Focus on major currency pairs
- Trade on a higher timeframe
1. Focus on major currency pairs
Trade the major currency pairs (those with USD in it) like EUR/USD or GBP/USD instead.
Major currency pairs have higher trading volume and liquidity.
This means that their Spread is much lower.
Avoid trading exotic currency pairs from developing countries like Mexico, Turkey, etc.
Because they have larger Spreads to compensate for the lower volume and liquidity.
2. Trade on a higher timeframe
By trading on higher timeframes, you’ll place wider stop loss and profit target.
And the thing is…
As your stop loss is wider, the bid ask Spread matters less.
Here’s how it works:
Let’s say you buy 1 lot of EUR/USD on the 5-minute timeframe.
You place 10 pips of stop loss.
The spread of 3 pips is 30% of your stop loss.
Let’s say you buy 1 lot of EUR/USD on the Daily timeframe.
And you place 100 pips of stop loss.
The spread of 3 pips is only 3% of your stop loss.
So if you trade on the higher timeframe with a wider stop loss…
The percentage of transaction costs on the trade decreases.
Now, there’s other advantages to trading the higher timeframes.
If you want to find out more…
Then check out The Truth About Trading Daily Timeframe Nobody Tells You.