Can You Take Advantage of a Widening Spread In Trading

in this video trailer is going to answer the question can

i take advantage of a widening spread stay tuned

hey traders a warm welcome to you right so very specific question here from our viewer subscriber and dj kloop good name uh

he said hey i’ve noticed that certain pairs i’ve noticed with certain pairs sorry

that the spread increases dramatically as much as 500 to 100 pips or more is there a strategy to take advantage of this widening i have particular orders pre-spread widening great question okay so this happens generally guys spreads will widen either before market data sometimes some companies will widen the spread before market data i economic data non-farm payrolls interest rates announcements during it because they’re just passing on the spread that’s from the interbank of talking about forex or the futures market we’re talking about nasdaq or dow or footsie because when things are going crazy there’s lots of algo activity liquidity is thin on the order book and the spread can be quite wide and if you’re talking about a broker a cfd broker a spread betting broker or a spot forex broker they will usually not always pass that spread on to you

and the other time is sometimes in the evening session so

after hours technically you might find the spread widens out and again it’s because of lack of liquidity and a wider spread in the underlying so if you’re trading through a broker like a cfd broker a spread back broker or a spot forex broker you might see this and we’re going to use pips or points as a

interchangeable guys you know so you might under normal circumstances have a 1.01 pip spread i pips obviously it’s forex points you know that’s just the

way we tend to use it if we’re talking about currency i’m talking about commodities or

indices but same kind of thing 50 to 60 would be a widening

so we’ve now got a 10 point spread a 10 pip spread

so if you buy at this point in time you’re paying 55

if you bought at this point time it says 1 am in the morning

you’re paying 60. the market they said the market hasn’t moved so there’s no no movement in the market in the chart saying the other side you sell the best price you can sell at 50 the best price you can sell at is 54.


you don’t really have any advantage in fact it’s just a disadvantage to you when the spread widens if you’re a price taker so you’re you are a price taker if you’re trading with a broker because the broker will only allow you to take the price that they offer yes you can use a limit order but that will only get triggered if the offer if it’s a buy or the ask comes down to your level so let’s say you put a buy limit so let’s do you let’s see do a buy limit

uh let’s see one at one unit whatever that may be at 60.

you will only get filled then if the price

comes down to 60. so sixty now you’ll get filled now

if you went and put a sell limit so you’re thinking about how well i can take advantage of this i can put a sell limit at 60 and get filled at 60 and take advantage of widening spread

you’d only get filled on that that is a six honestly guys you’d only get filled on that

if the bid went to 60. so the bid would have to come up

and that had to be 60 to whatever that may be so you’ve got no advantage by using a limit order when you’re a price taker so the answer if you are trading with a broker is no it’s just a disadvantage to you

because actually you can end up being stopped out you might not even get filled on your limit you might uh you know if you’re in there if you wanted to buy at 55

say let’s see the limit of 55 uh to buy to cover your positions take your profits bank your bank your winnings if it was 50 60 you wouldn’t get filled

if it was 54 55 you get filled on that and you’d be able to close the trade so widening the spread is never any good for you if you’re a price taker the only other time we’ve got is if we are on the other side of the trade so if you have direct access

to the market i.e you’re trading directly on the new york stock exchange you’re trading the nasdaq you’re trading uh nymex any of the futures you’re going directly to the exchange and that’ll be a different broker the broker then would give you access to the exchange and you’d pay a commission and it’s something you can choose to do or not the barito entry is very very similar uh then it becomes a different story as the spread widens

you can become someone who is adding liquidity

so if you see the spread wide into 50 to 60

you can come in with your order and come in and put a bid in then at 51 right so if you get filled you are filled at 51 then you are taking advantage of that widening spread or you could sell 50 if you wanted as well of course and then maybe you know in theoretically speaking this is a hard easier said than done you come in and offer 59 so you could sit there and be a market maker adding liquidity take advantage of the widening spread by narrowing it slightly and then you’re sitting there at 51-59 if you’ve got a field on both of those you’d make eight pips right so this is only applicable if this if you are going direct to the exchange you can put your orders into the order book now this is a common tactic guys i know a lot of people who

used to do this it’s not so lucrative anymore

and you know spreads widening for a reason generally it spreads widening because

um there’s not much liquidity or if you are going to get hit

the market is going to move up anyway you maybe you get hit on 59 it jumps straight up to 70. so you’re kind of taking the risk that way so

another thing you can do as well is you know taking it

going back to the question taking advantage of widening spread if you want to take advantage of this kind of stuff if you’re direct to the market there’s nothing stopping you let’s say putting in speculative bids at say

five and you know 98 for example and you could have them there so that if they’re spread wide and if someone came down and swept the market of course you’re vulnerable potentially to the market just moving against you and filling you

but this is a strategy that some people employ that when

maybe there’s news or data and it’s the spread’s widening it’s flicking about a bit

just putting some staggered high bids and offers away from the market someone might just put a marketing order in it might just tag you the spread might go wide but the fact that someone’s buying and buying the offer buying the offer buying the offer you’re sitting on the offer you might get filled in that 98 then it comes back to kind of 60 or 40 or whatever and you can

get the deal i can’t take the deal off from there but that’s a different strategy

that’s something you’ve got to be very careful and very mindful of and kind of do your own research to get involved in that but for the majority of people who are price takers which we are if we trade through a broker the widening spread is no good because you’re

not going to get filled on having speculative orders in uh and in fact you’re just going to do you could do no favors whatsoever and you could get stopped out and all this kind of stuff so widening spread generally logans why was look for a broker guys that’s got a good tight spread and some brokers will offer you know fixed spreads some

offer kind of variable spreads and it’s up to you to decide

on which one to choose you want to check out our channel sponsor guys our broker uh are sponsoring our channel as a link to them in the description below go and check them out and you can see different account types and all that other good stuff so can i take advantage of a widening spread uh only if you are going direct to market is the kind of short answer to that appreciate the question so take care bye you

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