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Can a spread be negative?

Negative spread is a condition when the selling price or the current price is cheaper than the purchase price from the price fluctuation of target investment. Furthermore, in some cases, negative spread also refers to the condition where the price had become quite different from that naturally original expected price.

gemforex.com - Let's master the meaning and use of Negative spread! - GemForex

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Today, I would like to explain about the term Negative spread.

You need to be extra careful to the negative spread in the high interest rate currency I often hear, “I traded aiming for currency swap of high interest rates, the profit I took from swap ended up to negative spread by the sudden fall of the market.” Negative spread is, just as what is written above, is the condition where the current price is cheaper than the purchase price. In the case of this remark, it displays a condition where even if the profit obtained from interest rates swap is added, the unrealized loss becomes bigger. Turkish Lira and South African Rand has been referred to as the high interest rate currency. Because the value of the currency is low, the other currency that can trade with the value of about 1 in 10 minutes. Because of high interest rates, currencies are able to earn income due to the large interest rates on a daily basis. There is an attraction in the possibility of getting income in a fixed daily basis. However, there is also a risk for those traders who aim for the swap that looks yummy. It is said that, “the traders who aim for swap of high interest rate currencies are afraid of negative spread". Because no matter how much profit you get through swap, if the loss that comes out is more than that when the market declines, the profit obtained will also be lost. In particular, because high interest rate currency is said to be prone to slump and sudden rise, you must be particularly careful with the negative spread. In the high interest rate currencies, the only reason is the high interest rates. For political measures, the country raises the interest rates of high-interest-rate currencies. Although there are several reasons to set high interest rates, but most of the reason of the currency of high emerging countries with the price of low interest rate is to increase the inflow of foreign funds. The South African Rand and Turkish Lira have set higher polity interest rates for this reason. For example, in the case of the Turkish Lira, although it is adjacent to the oil-producing countries, even a drop of oil is not being produced in Turkey. Thus, there is a situation in which there is no choice but to summon the funds by a high interest rate policy, more than the fund that it cannot do to influx funds into the country by natural resources As mentioned above, it is a common reason why a country currency with such low value has high interest rates, it also has a high possibility that negative spread will occur in the trade of aiming swap.

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Negative spread trade-chance!

Just like “the negative spread in the condition where the original price is quite different, is a chance of trade,” the term Negative spread is being used. In this case, the negative spread is being used with the meaning where the condition is quite different from the natural price. You have to see very well the inexplicable rate fluctuations when doing the Forex trade. Why the market declines when it should be fundamentally good, why the market falls when the other indicators result are very good, I think anyone have experiences such conditions. I often hear voices incurring loss from such situations. However, if you flip back the situation, it could mean chance. Because the unnatural fluctuation of exchange rate is said to be the force working to return to any reasonable price. For example, if you feel that the current price is somewhat unnatural, oftentimes the other traders are thinking in the same way. Furthermore, there is a possibility that the entire market traders think so. Then market traders so as to lead to the proper price would put an order, so the price will be back to something reasonable. Therefore, negative spread is said to be trade opportunities. In order not to miss the chance of negative spread, it is effective to get familiarity in always thinking whether the current price is reasonable, and if it is not reasonable, whether it is from the top or bottom of the reasonable price. Moreover, in case negative occurs temporarily such as from indicators, since it often goes back to the appropriate price almost instantly, if you find the negative spread, it is also effective to be aware and to be able to put a quick order. In this way, since you will also get used to the keywords in order to get profit by trade, master firmly how to use the negative spread.

gemforex.com - Let's master the meaning and use of Negative spread! - GemForex

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