8 Tips to Avoid the Widest Spread Trades
Written by Hunter on February 3, 2025.Trading? It is all about precision. Whether you’re a seasoned spread trader or just diving into the markets, the widest spread can often drain more profits than a crash tweet. But don’t worry — we’re here whenever you need us.
In this guide, we’ll show you how to sidestep high trading spreads, understand the mechanics of spread in currency trading, and give you 8 tips to keep your forex spread tight. Let’s get into it, Maven-style: simple, chill, and packed with the insights you need!
Understanding Spreads: What Are They?
Before we tackle and unpack the big bad widest spread, let’s get back to basics. The spread is the difference between the bid price (what buyers are willing to pay) and the ask price (what sellers are asking for.) Think of it as the cost of doing business.
For example, if the EUR/USD forex pair has a bid price of 1.2000 and an ask price of 1.2005, then the spread is 0.0005, or 5 pips.
Why does this matter? A wider spread means you need a more significant price move just to break even. It’s like running on a treadmill that’s set to uphill—you’re working harder just to stay in place.
What Causes Option Spreads to Widen?
Spreads widen when market conditions go haywire. Here’s why it happens:
- Low Liquidity: When there aren’t enough buyers or sellers in the market, brokers widen the spread to manage risk.
- Volatility: During major events (such as interest rate decisions or political upheavals), prices fluctuate wildly. Brokers respond by increasing the spread to protect themselves.
- Exotic Pairs or Low-Volume Assets: Not all trades are created equal. Spreads in currency trading tend to be tighter on significant pairs like EUR/USD but wider on exotics like USD/ZAR.
So, what tips can we give you to help with forex and trading spread?
1. Trade During Peak Market Hours
Forex spread and trading spread can vary drastically depending on the time of day. Major markets, like London and New York, overlap between 8:00 a.m. and 12:00 p.m. EST, making this the golden window for tight spreads. During these hours, liquidity is high, and brokers can offer tighter spreads.
Avoid trading during the “dead hours,” like late Friday afternoons, when liquidity dries up and spreads balloon.
Maven Trading Tip: If you’re into things like gold, time your trades during periods of active market participation. Don’t trade Bitcoin at 3 a.m. unless you’re purposefully chasing wider spreads (and why would you?).
2. Stick to High-Liquidity Instruments
The more liquid the asset, the tighter the trading spread. For forex spread traders, this means sticking to major currency pairs like:
- EUR/USD
- USD/JPY
- GBP/USD
Avoid exotic pairs unless you’re prepared for some wild rides, and, yep, the widest spreads.
3. Use Limit Orders
Market orders are outstanding for speed, but they can leave you exposed to wider spreads, especially during volatility spikes. Limit orders, on the other hand, let you specify the price you’re willing to pay, helping you avoid the dreaded widest-spread trap.
Wait—What Does a Wider Spread Indicate?
A wider spread usually signals uncertainty. It could mean:
- Market Turbulence: Volatility has skyrocketed, often due to news of unexpected events.
- Low Participation: Lack of buyers/sellers.
What does all the above mean? If the spread looks abnormally wide, the market might be trying to tell you to wait this out.
4. Avoid News Events
Yes, we know, it is so tempting to trade during NFP (Non-Farm Payroll) reports or significant central bank announcements. The price action is wild, but so is the trading spread that comes with it. Brokers widen spreads to hedge against sudden price jumps.
Maven Trading Tip: Check an economic calendar before placing trades. Sit out high-impact events unless you’re confident in managing volatility.
5. Choose a Tight-Spread Broker
Every trader has their unique strengths and weaknesses. Some may specialize in tight spreads for forex traders, with others widen their spreads to compensate for commission-free trading. Look for the brokers offering competitive spreads in currency trading, especially on popular pairs.
6. Master the Art of Risk Management
Risk management isn’t just about stop-losses — it’s also about avoiding the situations where spreads eat into your profits. Here’s a few tips on how to avoid it:
- Keep Position Sizes Reasonable: Large positions amplify the impact of spreads.
- Use Demo Accounts: Practice on demo accounts to test spread sensitivity before committing your real funds.
How to Overcome Spread in Trading?
To overcome spread in trading, you need discipline:
- Scalp with Caution: Scalping can be tough with high spreads. Stick to tight-spread brokers if you’re a short-term trader.
- Swing or Position Trade: Longer timeframes make spreads less significant.
7. Monitor the Spread like a Hawk
Most trading platforms should show you the current spread. If you notice that it is widening unexpectedly, pause and reevaluate. This could be a sign of market instability or an upcoming major news event.
8. Use The Technology
Spread traders know that tech is your best friend. Advanced trading platforms allow you to set spread alerts, automate trades, and even avoid trades with wide spreads!
How To Avoid High Spreads?
In summary, avoiding high spreads boils down to:
- Trading during peak liquidity hours.
- Sticking to liquid instruments.
- Avoiding volatile news periods.
- Using brokers with competitive pricing.
Master the Spread Game and Level Up Your Trading!
Spread trading can be distilled down into minimizing your costs and maximizing your efficiency. The widest spread might seem like a minor inconvenience at first, but over time, it can significantly impact your profitability.
To avoid that, trade smart, stick to high-liquidity markets, use technology, and keep your forex spread manageable with your trading on track!
Maven Trading is always here to help you build skills, stay informed, and keep your trader hustle and information strong. Whether you’re stacking gold trades, scalping forex, or swinging, avoid the widest spreads working with us, and you’re already one step ahead of the game!
