What Is a Spread in Forex Trading?
The spread is the primary trading cost you pay on every position. Learn how it's calculated, what affects it, and how to compare brokers on this metric.
Every time you open a forex trade, you pay a cost called the spread. It's the difference between the price you can buy at (ask) and the price you can sell at (bid).
The bid and ask price
When you look at a currency pair quote, you see two prices:
EUR/USD 1.08502 / 1.08515
BID ASK
- Bid: the price a broker will buy the base currency from you
- Ask: the price a broker will sell the base currency to you
The spread here is 1.3 pips (1.08515 − 1.08502 = 0.00013 = 1.3 pips).
Why the spread is a cost
When you open a long (buy) trade, you enter at the ask. To close it, you sell at the bid. You start the trade already 1.3 pips below breakeven. The market must move at least 1.3 pips in your direction before you break even.
On a standard lot (100,000 units), 1 pip on EUR/USD = approximately $10. A 1.3-pip spread costs you $13 per round-trip trade before profit or loss.
Fixed vs variable spreads
| Type | How it works | Best for | |------|--------------|----------| | Fixed | Stays the same regardless of conditions | Predictable cost; good for beginners | | Variable | Widens during news, thin markets | Can be tighter in normal conditions |
Fixed spreads give you certainty. Variable spreads can be narrower during liquid hours (London/New York overlap) but widen sharply around economic data releases.
How to compare brokers on spread
Don't just compare the headline EUR/USD spread. Check:
- Average spread, not minimum — some brokers advertise "from 0.0 pips" but averages are much higher
- Spread during your trading hours — if you trade Asian session, London-session spreads don't matter
- Spread + commission total cost — an ECN account charging $7/lot commission with a 0.1-pip spread may be cheaper than a 1.5-pip no-commission account at high volume
Spread markup vs commission model
Brokers make money either by marking up the spread they receive from liquidity providers, or by charging a separate commission and passing tighter spreads through. Neither is inherently better — the total cost per lot is what matters.
For a trader opening 10 standard lots per week, even a 0.5-pip difference in average spread costs $250/week — $13,000 per year.
Disclaimer: This article is for educational purposes only and does not constitute financial advice. Trading carries a high level of risk. Only trade with money you can afford to lose.