Spreads refer to the difference between the bid (sell) and ask (buy) price of a financial instrument, such as a currency pair. They represent the transaction cost for traders, including brokers' fees and market liquidity.
Currency pairs with high spreads typically involve less liquid or volatile currencies. An example of a currency pair that usually trades with a high spread is the USD/ZAR (United States Dollar/South African Rand). The South African Rand is relatively less liquid, and its exchange rate can experience significant fluctuations, resulting in wider spreads.
On the other hand, currency pairs with low spreads generally involve major or heavily traded currencies. An example of a currency pair that usually trades with a low spread is the EUR/USD (Euro/United States Dollar). Both the Euro and the US Dollar are highly liquid and widely traded, offering tighter spreads as a result.
What are spreads? Give an example of a currency pair that you think usually trades with a high spread, and a currency pair which you think usually trades with a low spread.
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