What's the distinction between forex point value and spread?

2023-07-14

Summary:

Foreign exchange point value and spread are two important concepts in foreign exchange trading. Foreign exchange point value refers to a unit change in foreign exchange price, which represents the value change of each point.

Investors who are new to foreign exchange trading will first be introduced to some basic knowledge. Foreign exchange point value and spread are two important concepts in foreign exchange trading. So, are foreign exchange point values and spreads the same?

forex point value and spread

No, the foreign exchange point value and difference are not the same.

Foreign exchange point value refers to the change of a unit of foreign exchange price, usually expressed as the change of the last digit after the Decimal separator, such as 0.0001. It represents the value change of each point. In foreign exchange trading, the impact of every point change on the trading results is very important. For example, if a trader buys one hand (100000) of euros in the euro/dollar currency pair and the exchange rate rises by 10 points, the trader will earn a profit of $1000. Therefore, the foreign exchange point value reflects the profit or loss of the transaction.

The importance of foreign exchange point value is that it reflects the impact of small changes in foreign exchange prices on trading results. If the foreign exchange price rises or falls by a point, it means that the trader's profit and loss will also increase or decrease by a corresponding point. Therefore, the foreign exchange point value is an important reference indicator for calculating profits and losses and determining stop-loss and stop-profit levels.

The spread refers to the difference between the buying price and the selling price. The buying price is the price at which the dealer is willing to purchase a currency pair, while the selling price is the price at which the dealer is willing to sell the currency pair. The point difference is usually expressed in the form of points, such as 0.5 or 1. Spreads reflect the cost of trading and are one of the ways traders profit from trading. When traders execute buying and selling transactions, they need to pay a spread as the cost of the transaction.

The size of the spread is very important for foreign exchange traders, as it directly affects the cost and profit potential of trading. A lower spread means lower transaction costs, which is attractive for frequent or small-scale traders. A higher spread will increase transaction costs and suppress profit potential to a certain extent. Therefore, choosing a trader with a low spread is crucial for traders.

Therefore, although both foreign exchange point values and spreads are related to foreign exchange trading, they represent different concepts. Foreign exchange point value is a unit that represents price changes and is used to calculate profits and losses, while point difference represents the difference between the buying and selling prices, representing the cost of transactions. Understanding these two concepts is crucial for foreign exchange traders, as they directly affect the profitability and costs of trading.

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