New comers to the financial spread trading are intimated by the jargon used in the financial markets. However, spread trading is a simple trading instrument that refers to the spread, which is the difference between the price offered for the purchase of the underlying instrument and the price for the sale of the instrument.
The prices so offered are the ‘offer’ and the ‘bid’ price which means the purchase price and the sale price, respectively. The traders anticipate on the movement of the prices of the securities, with the spread or the difference in the prices being the profit when multiplied with the value of the per point movement.
Some traders even refer to spread trading as a form of futures contract trading with the spread being the difference between the future contracts. Spread trading can be intra-market, inter-market and inter-exchange.
The spread trading firms make their earnings through the ‘cost’ of the spread while the trader profits or loses money with the widening or narrowing of the spread.
As customers it is essential to understand that you should choose trading platforms that offer a tight spread because a wide spread would initiate higher costs of opening and closing the trade.