Forex spread trading strategies

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. The idea is that if the market breaks the previous low, the market is likely to breakout downward, and if the market breaks the previous high, it’ll rally higher for a time.

  • Reputable brokers offer variable spreads aligned with market prices.
  • Indeed, the forex trading industry is usually made up of spreads since brokers only make money from the spread.
  • Trading Forex pairs with a fixed spread is becoming obsolete because offers limited advantages.
  • For example, a thinning spread between Brent and WTI can imply that the oil market is getting tight.

Intramarket spread trading, on the other hand, consists in opening opposite positions on the same asset at different maturities. For example, we could go long on the January expiration of Crude Oil, and at the same time go short on the March expiration of the same asset. Generally, this method works for commodities that tend to be more subject to seasonality. It is therefore important to gauge how much forex leverage you’re trading with and the size of your position.

Spread Trading

Therefore, it is wise for traders to trade these pairs with less leverage, or no leverage at all. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider.

Forex spread trading strategies

Unlike currency spreads, these assets are more capacious and allow you to invest huge money. And, as I wrote at the very beginning, the larger is the invested amount, the smaller is the percentage of profit that will satisfy the needs of the investor. With the amounts invested in oil price fluctuations, a movement of even 1% is enough to ensure huge profits in the annual time interval. And if the price of oil itself is very volatile, then the oil spread is a very conservative position.

Top 10 Strongest Currencies in the World in 2023

We also offer forex trading on our hosted MetaTrader 4 platform. Most forex currency pairs are traded without commission, but the spread is one cost that applies to any trade that you place. Rather than charging a commission, all leveraged trading providers will incorporate a spread into the cost of placing a trade, as they factor in a higher ask price relative to the bid price.

It’s not dissimilar from the 50-pips strategy that we’ve just looked at but you’re looking at the previous one-hour price chart for a currency pair. That’s when a long call vertical or short put vertical may serve you. Alternatively, long put verticals and short call verticals are considered bearish positions. A forex spread strategy can also be strengthened by the use of a trading indicator​​. The forex spread indicator is typically displayed as a curve on a graph to show the direction of the spread as it relates to bid and ask price.

What is a spread?

Cutting-edge trading charts and more accurate technical indicators will enhance your ability to spot trends and discover the correct points to enter or exit trades. There are several types of spreads; however, the two most common are inter-commodity spreads and options spreads. A vertical spread is typically an options position composed of either all calls or all puts, with long options and short options at two different strikes. The options are all on the same underlying and of the same expiration, with the quantities of long options and short options balancing to zero. You go short on the strongest instrument and long on the weakest one.

  • 72% of retail investor accounts lose money when trading CFDs with this provider.
  • You go to the market to buy a shirt and you find one that you love.
  • A calendar spread is considered a defined-risk strategy that involves selling a short-term option and buying a longer-term option of the same type (calls or puts).
  • But the most popular is known as arbitrage or pairs trading, where you buy and sell two currency pairs and benefit from the spread.

But if you look at the chart, the franc is now higher than the pound, which is not correct historically. Therefore, the spread may get as narrow as 0 points in the near future, and then, it may broaden in the opposite direction, to the advantage of the pound. We also expect that the pound will go down faster than the euro.


Options spreads are created with different option contracts as legs. Both contracts must pertain to the same security or commodity. Not investment advice, or a recommendation of any security, strategy, or account type. A calendar spread can be created using any two options of the same underlying, strike, and type (either two calls or two puts), but with different expiration dates.

This strategy is most well-suited to scalpers, who want to take smaller but more frequent positions, rather than looking at the longer-term price movements of a currency. grants access to more than 3,700 of the most-traded international markets, including stocks, indices, commodities, forex and cryptocurrencies. All things being equal, if the stock finished at $50 at expiration of the short option, your short option would be worth zero while the long option might now be $1.25. Because your long spread has “widened” from $0.75 to $1.25, your profit is $0.50 (minus transaction costs). The “spread” is the price difference between the long position and the short position.

You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. Please ensure you fully understand the risks involved by reading our full risk warning. As we will explain in this article, spread trading provides excellent risk management and lets you create “market neutral” positions. In addition, we will show you how to code a spread trading strategy on two related bond futures. Due to the above points, forex traders can employ an event-driven strategy based on macroeconomic indicators, in order to trade the tightest forex spreads and profit from opportune moments.


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