What Is a Spread in Forex?

Every time you place a forex trade, you pay a cost — even if your broker advertises "commission-free" trading. That cost is called the spread. Understanding spreads is essential to knowing your true trading costs.

Bid Price vs Ask Price

In forex, every currency pair is quoted with two prices:

• Bid price — the price at which you can sell the base currency
• Ask price — the price at which you can buy the base currency

The ask price is always slightly higher than the bid price. The difference between them is the spread.

Example: EUR/USD is quoted at 1.08500 / 1.08503. The bid is 1.08500, the ask is 1.08503. The spread is 0.3 pips.

How the Spread Works in Practice

When you open a buy (long) trade, you buy at the ask price. When you close it, you sell at the bid price. This means you immediately start the trade slightly negative by the amount of the spread.

If the spread on EUR/USD is 2 pips, you need the price to move at least 2 pips in your favor just to break even. Every pip above that is your profit.

Fixed vs Variable Spreads

Fixed Spreads

Fixed spreads stay the same regardless of market conditions. They're predictable and easier to plan around, but tend to be slightly wider on average. Common with market maker brokers.

Variable (Floating) Spreads

Variable spreads change based on market liquidity and volatility. During quiet market hours they can be very tight, but during news events or low liquidity periods they can widen dramatically. Common with ECN/STP brokers.

What Affects Spread Size?

• Currency pair — major pairs (EUR/USD, GBP/USD) have the tightest spreads. Exotic pairs have much wider spreads
• Time of day — spreads are tightest during the London/New York overlap (8am-12pm EST). They widen during Asian hours and on weekends
• Market volatility — spreads widen significantly during news events, economic releases, and volatile market conditions
• Broker type — ECN brokers typically offer tighter spreads than market makers

Typical Spreads by Currency Pair

• EUR/USD — 0.1 to 2 pips (tightest major pair)
• GBP/USD — 0.5 to 3 pips
• USD/JPY — 0.5 to 2 pips
• AUD/USD — 0.5 to 3 pips
• EUR/GBP — 1 to 4 pips
• Exotic pairs — 10 to 50+ pips

How Spreads Affect Your Profitability

Spreads are a direct cost of trading. The wider the spread and the more frequently you trade, the more you pay. A scalper making 20 trades a day at a 2-pip spread pays 40 pips per day just in costs — that needs to be overcome with winning trades before any profit is made.

For longer-term traders, spreads matter less since the expected move is much larger than the spread cost.

How to Minimize Spread Costs

• Trade major currency pairs with tight spreads
• Trade during peak liquidity hours (London/New York overlap)
• Avoid trading around major news events when spreads widen
• Choose a broker with competitive spreads for your trading style
• Factor spread costs into your risk/reward calculations

Spread vs Commission

Some brokers charge a very tight spread plus a small commission per trade instead of a wider spread with no commission. For high-volume traders, the commission model is often cheaper overall. For casual traders, spread-only brokers can be simpler. Always calculate the total cost both ways before choosing.