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Beat the market

How to beat the market’s bid-ask spread?

The spread is what you have to pay in order to buy and sell shares on the market. When you trade shares on the forex market, you are actually trading in the spot price. The real difference between buying and selling prices (also known as a spread) is like transaction cost.

Forex, or any sort of trading is all about a couple of simple strategies to reduce the spread between buying and selling prices. Yes, you read it right! This article is all about paying a minimum amount of money to the broker in order to get the maximum profit. But how can you reduce the spread between buying and selling prices? Simply, by looking at the real price of the asset.

The real value of any security or commodity can differ from the bid or ask prices. In order to beat the market spread, you need to find the real value of the asset. You can do this by analyzing the market trends or by using technical indicators. If you are good at analyzing the market, then you can use your skills to find the right time to buy or sell an asset.

The best way to use technical indicators is to use them in combination with each other. For example, you can use a moving average to find the trend and then use a Fibonacci level to find the right time to exit or enter again.

Here are the 3 steps to beat the market spread:

The first step is to do your homework. You need to have a solid understanding of how the markets work and what affects the prices of assets. Only then will you be able to identify the right time to buy or sell. You need to perform in-depth research on the different factors that affect asset prices. These include economic indicators, political factors, and even natural disasters. Here are the 5 things you need to research the actual value of a security:

1. Do your research to find the actual value of a security

a. The company’s financial statements

The financial statements will give you an insight into the company’s overall health. You need to look at the revenue, expenses, and profits to get an idea of where the company is heading. You can find this information in the annual report or on the website of the Securities and Exchange Commission (SEC).

b. The company’s products and services

You need to have a clear understanding of the products and services offered by the company. This will give you an idea of how much demand there is for their products and services. If there is high demand, then the prices of their assets will go up. On the other hand, if there is low demand, then prices will go down.

c. The industry trends

It’s important to stay up-to-date with industry trends. This way, you’ll know if the company is doing well or not. For example, if there is a new technology that everyone is using, then companies that are using this technology will see their stock prices go up. On the other hand, if there is a recession, then most companies will see their stock prices go down.

d. The political situation in different countries

You need to be aware of what’s going on in different countries around the world. Political unrest can cause asset prices to rise or fall sharply. For example, if there is a war going on in one country, then oil prices are likely to go up because that country might stop exporting oil. Similarly, if a country has new trade sanctions imposed on it, then its currency might depreciate sharply against other currencies.

e) Natural disasters

Natural disasters can also have a big impact on asset prices. For example, if there is a hurricane in the Gulf of Mexico, then oil prices are likely to go up because production will be disrupted. Similarly, if there is a drought in California, then food prices are likely to go up because agricultural production will be affected.

If you are able to find the actual value of a stock, it can be a very profitable investment. If you do it on a regular basis, no one can stop you from becoming a millionaire.

2. Identify the right time to buy or sell

The most important step to beat the market spread is to identify the right time to buy or sell. You need to have a solid understanding of market trends and technical indicators to be able to find the perfect time to enter or exit a trade.

There are two ways to identify the right time to buy or sell:

a) Fundamental analysis

Fundamental analysis is all about looking at the underlying factors that affect asset prices. This mosly includes economic indicators, political factors, and wars. You need to have a solid understanding of how these factors impact asset prices. Failures are often made by fundamental analysts who don’t take into account all the underlying factors.

b) Technical analysis

Technical analysis is all about looking at past price movements to predict future price movements. This is done by using technical indicators such as moving averages, support and resistance levels, and Fibonacci levels. Technical analysts also use charts to identify patterns such as head and shoulders, triangles, and double tops/bottoms. You can use technical analysis to find the actual value of a security by :

i. Identifying the trend

The first step is to identify the overall trend. You can do this by using a moving average. A moving average is simply the average price of a security over a certain period of time. The most common time periods are 50 days, 100 days, and 200 days.

ii. Identifying support and resistance levels

Once you have identified the trend, you need to identify the support and resistance levels. These are simply the levels where the price is likely to find support or resistance.

iii. Identifying Fibonacci levels

Fibonacci levels are simply horizontal lines that are drawn at certain percentage points above and below a recent high or low. The most important Fibonacci levels are 23.6%, 38.2%, 50%, 61.8%, and 100%.

Take the current market fall for example. Wall street has been continuously declining since the very first trading week of 2022. Many people have lost a lot money in the stock market. But does that mean everybody who sold their stocks lost money? No. In fact, there are many people who made a lot of money during this market crash. How? They simply identified the right time sell.

If you use them correctly, stop-loss orders can help you beat the market spread. You can use them to limit your losses just in case the market goes against you. But inexperienced traders often use them incorrectly and end up losing more money.

3. Use stop-loss orders

Here’s how to use stop-loss orders correctly:

  • Set your stop-loss order at a level where there is likely to be strong support or resistance.
  • Set your stop-loss order at a level where you are comfortable losing the money.

a) Set your stop-loss order at a level where the market is likely to reverse.

For example, if you bought shares of ABC company at $100 and you set your stop-loss order at $95, then you will sell your shares automatically if the price falls to $95. This will limit your losses to $5 per share. But if you set your stop-loss order at $90, then you will sell your shares automatically if the price falls to $90. This will limit your losses to $10 per share. So, it’s important that you set your stop-loss orders correctly in order to beat the market spread.

b) Another way is to use trailing stop losses.

A trailing stop is a type of stop loss order that adjusts to the changing price of a security. It “trails” the security’s price by a set percentage or dollar amount. For example, if you enter a short position in a stock at $10 and set a trailing stop loss at $11, your stop loss order will adjust to $9 if the stock price falls to $10. Trailing stop losses can be a wonder for your trading career if you use them correctly. They are not a silver bullet, but when used correctly, they can be a powerful weapon to defeat the market spread.

For better precision, use market orders. Market orders are simply buy or sell orders that are placed immediately at the current market price. For example, if the current market price for XYZ company is $100 and you place a buy market order, then your trade will be executed immediately at $100 per share. Market orders give you a chance to beat the spread because they allow you to trade immediately without having to wait for the right time or right price.

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