Introduction: What Is a Spread in Trading?In trading, a “spread” is the difference between two prices: the bid price and the ask price. The bid price is the highest amount a buyer is willing to pay for an asset, while the ask price is the lowest amount a seller is willing to accept. This gap is an important cost for traders and a way for brokers to earn money.Spreads exist in all types of markets, including foreign exchange (forex), stocks, commodities, and contracts for difference (CFDs). For example, in forex trading, if the currency pair EUR/USD has a bid price of 1.1000 and an ask price of 1.1002, the spread is 0.0002, or 2 pips.Example:Bid price: 1.1000Ask price: 1.1002Spread: 2 pips (this is the cost to open the trade)For traders, smaller spreads mean lower costs, which can increase profits, especially for those who trade frequently, like scalpers or day traders.How Spreads WorkWhen you make a trade, you incur a cost that is included in the process of opening a position. Here’s how it works step by step:Bid and Ask PricesBid price: The price at which you can sell an asset.Ask price: The price at which you can buy an asset. The difference between these two prices is called the spread.Spread as a Trading CostWhen you open a position, you start with a small loss equal to the spread. For you to break even, the market must move in your favor by at least the size of the spread.Spread SizeSpreads are measured in pips for forex or in price points for other markets, indicating the cost of trading. Major forex pairs, like EUR/USD, often have very tight spreads (0.1–2 pips), while exotic pairs or less popular assets can have much wider spreads.Broker Pricing ModelsMarket Maker brokers often provide fixed price differences that remain constant, even during market fluctuations.ECN/STP brokers typically provide variable spreads, which can change based on market conditions but are often narrower during normal trading times.Example: If the bid price of GBP/USD is 1.2500 and the ask price is 1.2503, the spread is 3 pips. If you buy at 1.2503, the price must rise to at least 1.2506 for you to cover the cost.Types of Spreads (Fixed vs. Variable)Brokers generally offer two types of spreads: fixed and variable (also known as floating). Each type has its advantages and disadvantages, depending on your trading style.Fixed SpreadsThe gap between the bid and ask prices stays consistent, no matter the market conditions. This type is common with market maker brokers and is easier for beginners to understand since the costs remain the same.Downside: Fixed spreads are usually higher than average variable spreads, especially during calm market conditions.Example: If EUR/USD always has a 2-pip spread, it remains the same whether the market is quiet or highly active.Variable (Floating) SpreadsThe gap between bid and ask prices changes based on how many buyers and sellers are in the market and how much prices are moving. This type is common with ECN/STP brokers and can be very low during times of high liquidity (like when the London and New York markets overlap).Downside: Spreads can widen significantly during news releases or times of low liquidity.Example: EUR/USD might have an average spread of 0.2–0.5 pips during busy hours but could widen to 3–5 pips during major news events.Which Is Better?Fixed spreads: Ideal for beginners and those who want predictable costs.Variable spreads: Better for active traders, scalpers, and those trading during busy market hours.Tip for beginners: If you are just starting, a fixed-spread account may feel safer. As you gain experience, you might prefer the flexibility and lower costs of variable spreads.Why Low Spreads Matter for TradersSpreads are a hidden cost of trading. The smaller the price difference, the less the market needs to move in your favor for you to make a profit. Here’s why low spreads are important:Lower Trading CostsNarrower price gaps decrease the expenses associated with entering and exiting trades. This is especially crucial for scalpers and day traders who make many trades in one session.Faster Break-Even PointWith low spreads, trades can reach break-even more quickly. Broader price gaps require more significant market movements just to break even.Better for High-Frequency StrategiesTechniques such as scalping and algorithmic trading rely on seizing minor market fluctuations. Low spreads make these strategies more effective.Greater Profit PotentialThe lower your costs, the greater your retained profit. Over time, this difference can add up significantly.Transparency and Fair PricingLow spreads often indicate access to true market pricing, especially with ECN/STP brokers. This creates trust and reduces conflicts of interest.Example: A scalper executes 20 trades in a day, aiming for 5 pips profit each time.With a 2-pip spread, the trader keeps 3 pips per trade, totaling 60 pips.With a 0.5-pip spread, the trader keeps 4.5 pips per trade, totaling 90 pips.The difference in spreads increases overall profit by 50%.Factors That Affect SpreadsPrice differences can change; they can widen or tighten due to several factors. Here are the main ones:Market LiquidityHigh market activity leads to smaller spreads: Major forex pairs like EUR/USD or USD/JPY often have spreads below 1 pip during busy trading hours.Low trading activity leads to wider price differences: Exotic pairs or niche assets usually have wider price differences due to fewer buyers and sellers.Market VolatilityDuring major news releases (like interest rate changes), spreads can widen significantly as prices shift quickly and liquidity providers protect themselves.Time of DayPrice differences are typically lowest during high-volume trading sessions (such as when London and New York markets overlap) and widest during off-hours (like when the Asian session closes or before major markets open).Broker TypeMarket makers often offer fixed spreads but at slightly higher levels. ECN/STP brokers provide variable spreads that can be very low under normal conditions.Asset ClassForex majors typically have the lowest spreads.Commodities and indices have moderate spreads.Cryptocurrencies and exotic pairs often have higher spreads due to volatility and limited liquidity.Account TypeSome brokers offer specialized low-spread accounts (like ECN or Pro accounts) with raw spreads but charge a commission per trade.Example: EUR/USD might have a

Just last week, betting odds have a US government shutdown at around 10% only. But after the shooting death of civilian Alex Pretti by federal agents, it has changed things completely. Just days ago, a full-year funding deal seemed within reach. Now, Democrats are vowing to oppose the funding bill for the Department of Homeland Security (DHS).As a reminder, the last day to pass the government funding is 30 January and it has to be done before midnight. After which if there is no compromise to be struck, we’ll likely see a partial government shutdown once more.Currently, betting markets have odds of a shutdown surge up to around 70%. So, why does this all matter for markets?It brings us back to the same episode we saw in October last year. If the government does enter another shutdown, the Bureau of Labor Statistics (BLS) will immediately suspend almost all operations. Unlike government bodies like air traffic controllers (DOT) and border agents (DHS), the BLS is not deemed as “essential”. As such, data collection stops and once again we’ll be left without key US economic data to work with for the weeks ahead.What key economic data releases will be impacted by a shutdown this time around?The most immediate will be the release of the upcoming January labour market report. Yes, the non-farm payrolls report will once again be impacted and we might be in a situation where it is postponed indefinitely. This release is scheduled for 6 February.And if the shutdown drags on, that will also likely delay the next consumer price inflation (CPI) report for January. That is scheduled to be released on 11 February. As a reminder, it was the October CPI report that was skipped and is leaving a bit of a blip in the historical data estimates now.So once again, the Fed might very well have to “fly blind” to start the new year. And it isn’t helped by the fact that policymakers and markets are also still trying to work out the impact of the previous shutdown on the numbers in the labour market and inflation reports.What a mess. This article was written by Justin Low at investinglive.com. 🔗 Source 💡 DMK Insight The sudden shift in sentiment around a US government shutdown could shake markets significantly. With betting odds now reflecting a heightened risk of a shutdown, traders need to consider how this uncertainty might impact sectors like defense, government contracts, and even broader market indices. The potential for a funding impasse could lead to volatility in equities and safe-haven assets like gold or the dollar. Look for key levels in the S&P 500 and Dow Jones to gauge market reactions—if we see a drop below recent support levels, it could trigger further selling pressure. On the flip side, if a resolution emerges quickly, we might see a sharp rebound. Keep an eye on political developments and any statements from key lawmakers, as these will likely influence market sentiment in the short term. 📮 Takeaway Watch for key support levels in the S&P 500; a breach could signal increased volatility as the government shutdown risk escalates.

FUNDAMENTAL OVERVIEWUSD:The US Dollar sold off across the board on Friday following rumours of the NY Fed conducting rate ​checks on the USD/JPY pair. The market took that as a signal of a potential intervention to strengthen the Japanese Yen and the unwinding of positions weighed on the greenback. This wasn’t a fundamental-driven move but a “technical” one. In general, such reactions are eventually faded in the following days. The problem for the dollar is that there’s no strong reason for it to appreciate yet. This week, we have the FOMC decision on Wednesday where the central bank is expected to keep interest rates unchanged and maintain a data-dependent approach for the next rate cuts. There shouldn’t be any surprise at this meeting. February might be key for the US Dollar as we get another set of economic data, with the NFP report likely being pivotal for the market pricing. In fact, we’ve been seeing notable improvements in the US Jobless Claims data that could point to a re-acceleration in the labour market. The market is still pricing 48 bps of easing by year-end. Those bets are likely to be pared back in case the data strengthens and should provide support for the greenback.AUD:On the AUD side, the currency surged following the blockbuster Australian jobs report last week that triggered a hawkish repricing in interest rates expectations with traders now expecting a rate hike already at the upcoming RBA meeting (63% probability). As a reminder, the RBA at the last policy decision sounded more hawkish following a series of higher-than-expected inflation reports. The central bank also discussed whether a rate hike might be needed at some point in 2026. This week we have the Australia’s quarterly inflation report. We will likely need very soft data to bring the February rate hike probabilities below 50%. Another hot report is going to seal the rate hike. AUDUSD TECHNICAL ANALYSIS – DAILY TIMEFRAMEOn the daily chart, we can see that AUDUSD finally reached the 0.69 handle with the price now trading a bit above it. We are now at a very strong resistance zone that capped the upside since 2023. We can expect the sellers to step in around these levels with a defined risk above the resistance to position for a pullback into the trendline. The buyers, on the other hand, will look for a breakout to increase the bullish bets into new highs.AUDUSD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAMEOn the 4 hour chart, we can see that we have an upward trendline defining the bullish momentum on this timeframe. If we get a pullback, we can expect the buyers to lean on the trendline with a defined risk below it to position for a rally into new highs. The sellers, on the other hand, will look for a break lower to increase the bearish bets into the major trendline.AUDUSD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAMEOn the 1 hour chart, we can see that we have another minor trendline defining the bullish momentum on this timeframe. The buyers will likely continue to lean on the trendline to keep pushing into new highs, while the sellers will look for a break lower to extend the pullback into the next trendline. The red lines define the average daily range for today. UPCOMING CATALYSTSTomorrow we have the weekly US ADP jobs data and the US Consumer Confidence report. On Wednesday, we have the Australian quarterly CPI report and the FOMC policy announcement. On Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the US PPI report. This article was written by Giuseppe Dellamotta at investinglive.com. 🔗 Source