Two prices for everything
Open your platform and look at, say, EURUSD — you don't see one price, you see two:
- Bid — the price you get when you sell.
- Ask — the price you pay when you buy.
The ask is always slightly above the bid. The gap between them is the spread. Buy at 1.0852 while the bid is 1.0850 and the spread is 2 pips — which is exactly how far underwater your position is the second you open it. Price has to move 2 pips in your favor just for you to break even.
Why does the spread exist?
The spread is the compensation for whoever quotes the prices — the market maker or liquidity provider committing to take the other side of your trade. For many brokers, the spread is also all or part of their revenue: instead of charging a commission per trade, they build their margin into the spread. That's why "zero fees" is never the whole story — the cost lives in the spread.
Fixed or variable spread
| Type | How it works | Good to know |
|---|---|---|
| Fixed spread | Same spread regardless of market conditions. | Predictable, but usually higher on average. |
| Variable spread | Changes with liquidity and volatility. | Low in calm markets, can explode around news. |
Most modern brokers run variable spreads. That means the spread you see at 10 a.m. on an ordinary Tuesday is not the spread you'll get in the seconds around a rate decision.
When spreads widen — and why it can cost you
Spreads grow when few participants want to quote prices. That happens above all:
- Around major news releases — like NFP, inflation prints (CPI) and rate decisions. In the seconds around the release, the spread can widen tenfold.
- Overnight and at rollover — low liquidity between the New York close and the Asian open.
- At market opens — the Sunday forex open and weekend gaps.
- In panic markets — when volatility spikes, nobody wants to stand on the wrong side.
What the spread really costs you
Say you trade 0.1 lots of EURUSD, where a pip is worth about $1, and the spread is 1 pip. Every trade then costs about $1, win or lose. Five trades a day is $5 per day — over $100 a month, in spread alone. Scale up your position size and the cost scales with it.
The takeaway: the shorter your time horizon and the more trades you make, the more of your results the spread eats. A high-frequency scalper can pay more in spread than the strategy earns — while a swing trader holding positions for days barely notices it.
How to keep the spread cost down
- Choose a broker with tight spreads — the difference between 0.2 and 1.5 pips on EURUSD is enormous over a year.
- Trade liquid instruments — the major currency pairs, indices and gold have the lowest spreads.
- Trade during active hours — the London/New York overlap has the best liquidity.
- Avoid opening positions in the seconds around news releases — unless it's a deliberate part of your strategy.
- Include the spread in your risk math — especially if you trade with tight stops.
Frequently asked questions
What does spread mean in trading?
The spread is the difference between the buy price (ask) and the sell price (bid) of an instrument. In practice it is the cost you pay to open a position — every trade starts in the red by the size of the spread.
Why does the spread widen sometimes?
Spreads widen when liquidity is low or uncertainty is high — for example around major news releases like NFP and rate decisions, at market opens, or overnight. Fewer participants are willing to quote prices, so the gap between bid and ask grows.
What is a good spread?
It depends on the instrument. On EURUSD, the world's most traded currency pair, around 0–1 pip is normal with a good broker during active hours. The more often and the shorter-term you trade, the more a low spread matters.