The spread refers to the difference between the bid price (the price at which you can sell a currency pair) and the ask price (the price at which you can buy a currency pair). This difference is measured in (pips) Percentage in Price, and it represents the cost of trading a particular currency pair.
Key Points:
- Bid Price: The highest price a buyer is willing to pay for a currency.
- Ask Price: The lowest price a seller is willing to accept for a currency.
- Spread: The difference between the bid and ask price, which can vary depending on the currency pair and market conditions.
A narrow spread (smaller difference) usually indicates a liquid and actively traded market, while a wider spread can suggest higher volatility or lower liquidity. The spread is essentially the transaction cost that traders pay.
Key Factors That Trigger a Stop-Loss Activation:
- Market Price Reaches the Stop-Loss Level: If the market moves against your trade and hits the stop-loss price, the position is automatically closed.
- Bid/Ask Price: Depending on whether it's a buy or sell order, either the bid or ask price reaches the stop-loss level.
- For a buy (long) position: The stop-loss is triggered when the bid price reaches the set stop-loss level.
- For a sell (short) position: The stop-loss is triggered when the ask price hits the stop-loss level.
- Market Volatility: In fast-moving markets, prices can hit the stop-loss level more quickly, especially during periods of high volatility.
By setting a stop-loss, traders can manage risk by limiting potential losses automatically.