Monday, November 2, 2009

3.15 Forex Lexicon : Transaction Cost

The critical characteristic of the bid/ask spread is that it is
also the transaction cost for a round-turn trade. Round-turn
means both a buy (or sell) trade and an offsetting sell (or buy)
trade of the same size in the same currency pair.
In the case of the EUR/USD rate
EUR/USD 1.2604/07 , the transaction cost is three pips.
The formula for calculating the transaction cost is:
Transaction Cost = Ask Price - Bid Price

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