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Why do forex spreads widen? Why does the spread increase and what makes the spread change? What is a spread and why does it matter? What determines the spread of the market we're trading - why does the spread increases at times? (irrespective if trading a currency, index or commodity..etc). Why do spreads increase in forex? What determines a stock's bid-ask spread? There are 4 main things that effect the spread:
1) The liquidity of the market you're trading,
2) How active are buyers and sellers.
3) Volume of the order book.
4) Commercial decision by your broker. If you trade directly on an exchange say Nasdaq, NYSE, NYMEX..etc - the spread is irrelevant; the spread will then be based on the first three points.
The spread is determined literally by all participants in the markets irrespective what these are. With forex there is no central exchange but there are loads of banks out there who are quoted prices at which they are willing to buy and sell at. How fast or slow does the spread change?
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