The spread (of a group of people) is the difference between the bid price and the ask price quoted in pips. For example, if the quote(put forward or describe someone or something as being.) between EUR/USD at a given moment is 1.4222/1.4223, then the spread is 1 pip. If the quote is 1.4222/1.4242, then the spread is 20 pips.
The spread is also how banks and dealer make money. Wider spreads mean a higher ask price and a lower bid price. As a consequence,(a result or effect) you pay more when you buy and get less(fewer in number)when you sell, making it more expensive(costing a lot of money) for you. The difficulty lies in knowing whether a wider spread is based on market conditions or if it’s simply based on extra profit for the bank or dealer.
Banks and forex dealers typically don’t earn the full spread because they, in turn, must hedge out net client foreign currency exposure (the publicizing of information or an event) with other banks, which costs them the spread as well. The spread compensates forex dealers for taking on the risk that the price might change from the time they order a client’s trade to the time they safely hedge their net exposure with a bank.
Banks make money by creating trading volume that results in natural trading offsets Banks also make money by increasing (an instance of increasing) the spread charged in excess of the interbank spread for forex trading.
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