What Is a Forex Spread?

The spread is the difference between the bid price, at which you can sell a currency pair, and the ask price, at which you can buy it. It is measured in pips and represents the most direct cost of trading forex, paid at the moment you open a position. Understanding how to read a spread, convert it into money and anticipate when it widens is fundamental to controlling your trading costs.

Bid, ask and the gap between them

Every quote on a trading platform shows two prices.

The ask is always higher than the bid. If EUR/USD is quoted at 1.08500 / 1.08512, the bid is 1.08500, the ask is 1.08512 and the spread is 0.00012, which is 1.2 pips.

The mid-price, 1.08506, is what most charts display, but you never trade at the mid. You buy above it and sell below it. That asymmetry is the spread, and it is why a newly opened position shows a small loss straight away: closing it immediately would mean selling at the bid what you just bought at the ask.

Converting the spread into a cost

Because the spread is quoted in pips, its cost in money depends on your position size. Multiply the spread by the pip value for your trade.

Spread cost = spread in pips × pip value

For EUR/USD with a US dollar account, where one standard lot is worth $10 per pip:

The market must move in your favour by at least the spread before the trade reaches break-even. On a 1.2-pip spread, a long trade opened at the ask of 1.08512 breaks even when the bid reaches 1.08512, which requires the mid-price to rise 1.2 pips. The pip calculator converts spreads into cost for any pair and account currency.

Why spreads exist

The spread compensates whoever provides the price for the service and the risk of doing so. In the interbank market, banks quote two-way prices and earn the spread for standing ready to deal. Brokers either pass through the prices they receive from liquidity providers, adding a mark-up, or quote their own prices.

From the trader's perspective the spread combines several things:

• Liquidity cost: the tighter the market at that moment, the smaller the spread.
• Broker compensation: on accounts without a separate commission, the spread is the broker's revenue.
• Risk premium: when prices are volatile or uncertain, spreads widen to compensate for the risk of quoting.

Fixed and variable spreads

Brokers offer spreads in two broad forms.

Variable (floating) spreads

The spread changes continuously with market conditions. It is typically tightest during busy sessions and wider when liquidity is thin. Most accounts today use variable spreads because they reflect the real cost of liquidity at any moment.

Fixed spreads

The spread stays constant under normal conditions regardless of the time of day. Fixed spreads are usually wider than variable spreads at their best, since the broker must price in the risk of quoting a constant spread through quiet and volatile periods alike. Some brokers reserve the right to widen fixed spreads during extreme events.

Whichever model your broker uses, the specific spreads are set out in the published trading conditions and can differ between account types. See Standard vs Pro vs ECN Accounts for how the pricing models differ.

Spread versus commission

Some accounts charge no commission and build all costs into the spread. Others quote tighter raw spreads and add a fixed commission per lot. Neither is automatically cheaper; the total cost per round-trip trade is what matters.

Illustrative comparison for one standard lot of EUR/USD, with all figures hypothetical:

In this example the commission account is cheaper, but the outcome depends on the actual spread and commission figures, which vary by broker and account type. Understanding Broker Commissions explains how to compare them properly.

When spreads widen

Spreads are not static, even on the most liquid pairs. Expect them to widen in these situations:

1. Major news releases: in the seconds around central bank decisions, employment reports and inflation data, liquidity providers pull back and spreads can multiply several times over. The economic calendar shows when these are scheduled.
2. Daily rollover: around 5 p.m. New York time, when banks settle the day's positions, liquidity thins for a short period.
3. Session gaps: between the New York close and the Asia-Pacific open, and during public holidays in major financial centres.
4. Market stress: unexpected geopolitical events or sharp risk-off moves.
5. Less liquid pairs: exotic and some cross pairs carry wider spreads at all times. See Major, Minor and Exotic Currency Pairs.

A widened spread affects open positions too. If you hold a long trade with a stop-loss and the spread widens, the bid price falls further below the mid, which can trigger the stop even though the mid-price never reached it. Stops on long positions are triggered by the bid; stops on shorts are triggered by the ask.

Spreads and trading style

The importance of the spread scales with how often you trade and how small your targets are.

A scalper running many trades a day should treat spread as the single most important cost. A swing trader holding for weeks will usually be more affected by overnight swap than by the spread. Matching your account type to your trading style is therefore a cost decision; the trading accounts page sets out the options.

Key takeaways

• The spread is the difference between the ask (buy) and bid (sell) prices, measured in pips.
• Its cost in money equals the spread multiplied by the pip value of your position, and it is paid implicitly when you open a trade.
• A trade must move in your favour by at least the spread before it breaks even.
• Variable spreads track liquidity and tighten in busy sessions; fixed spreads are constant but usually wider.
• Compare spread plus commission, not spread alone, when assessing account costs.
• Spreads widen around news, rollover and holidays, which can trigger stops that the mid-price never touched.