Day trading: which spreads are worth the risk?

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Updated: 31 July 2020

Profitable forex trading relies considerably on spreads. The comparison between daily movements and daily spreads brings to light many interesting issues. Some pairs are more favorable to trade than others. In short-term trading, retail spreads are more difficult to overcome. Judgments can’t be made on whether a larger or smaller spread is better to trade on as a daily trade – both can be equally successful. Circumstances can change in an instant, so it’s essential to be aware and flexible so you can adjust. Although trading does require a degree of technical analysis, there are other factors that influence market direction, and these also need to be taken into consideration.

Setting a base level

In order to make the correct assumptions on which pairs are best to day trade, it is vital to set a base level or line. To do this effectively, the spread should be converted to a percentage of the daily range. This will make it easier to compare the maximum pip day trade potential against the spreads where any pair is concerned. Daily spreads and daily values are available at any given moment. As movements occur, the percentage will change. Spread adjustments and changes also affect the percentage. Keeping abreast of movement and changes is one piece of forex advice that should be followed religiously.

Trading pairs

Any movement in spreads expressed in percentage value can have a tremendous impact on the strategies incorporated into day trading. Any trader who focuses on a particular pair will most likely trade the pair that reflects the lowest spread percentage against the pip potential that is the highest.

Keeping it real

It is vital to retain a degree of realism throughout your trading experience. The chances of any trader picking the exact low and high is extremely unlikely. A trader is also unlikely to exit or enter within the top 10% of the average daily range or exit or enter within the bottom 10%; this leaves 80% of the range in play. It is more realistic to assume that any trader will enter or exit in that 80% frame rather than exactly in a high or low.

Bottom line facts

It is imperative for traders to know that the spread is a fair representation of a large portion of the daily average range for several different pairs. The spread plays a significant role when calculating the most likely entry and exit values.
Many traders trade on short time frames. These traders can keep an eye on daily average movements to confirm whether there is enough profit earning potential when trading in periods of low volatility. This enables them to make a judgment on whether active trading using a spread is a viable option. It is an important trading tip to remember that the spread loses significance during periods of high volatility. It is imperative to understand when the time is right to trade and when it is better to wait.

Trading carries an element of risk at any given time, but trading in ways that reduce that risk and protect your capital requires a thorough knowledge and understanding of the basic fundamentals. Be aware of current affairs or events that could play a major role in changing the direction of trade at any time. Taking calculated risks is the name of the game. Seek advice from the professionals when required.
Taking small, regular profits is far better than losing the capital in your account while chasing the big profits. Do your research and stick to your chosen strategy, and don’t doubt the work you have put into deciding on that particular path. Be open to opportunities that fall outside of your normal trading comfort zone.