What is Spread in Forex Trading?
Learn about Spread in Forex trading — the difference between Bid and Ask prices, types of spreads, factors that affect them, and how spread impacts your trading costs and profits.
What is Spread?
Spread is the difference between the Bid (sell) price and the Ask (buy) price of a currency pair in the Forex market. In simple terms, it’s the gap between the price at which the broker is willing to sell you a currency and the price at which they’ll buy it back from you.
When you open your trading platform and look at EUR/USD, you’ll see two prices:
- Bid (Sell Price): The price at which you can sell (e.g., 1.1000)
- Ask (Buy Price): The price at which you can buy (e.g., 1.1002)
Spread = 1.1002 – 1.1000 = 0.0002 = 2 pips.
💡 In Short
Spread is the implicit cost of trading. You don’t pay a direct commission on standard spread accounts — the broker earns from the difference between buy and sell prices. The moment you open a trade, you start with a small loss equal to the spread.
Understanding Bid / Ask Prices
To understand spread better, you need to know the difference between Bid and Ask:
| Term | Meaning | Example |
|---|---|---|
| Bid | Highest price the broker will buy from you | 1.1000 |
| Ask | Lowest price the broker will sell to you | 1.1002 |
| Spread | Difference between Bid and Ask | 2 pips |
When you buy, you pay the Ask price. When you sell, you receive the Bid price. The difference is the broker’s profit.
Types of Spread
There are two main types of spreads offered by brokers:
1. Fixed Spread
Stays constant regardless of market conditions. For example, always 2 pips on EUR/USD. Its advantage is predictability, but it may be wider than variable spreads during normal times.
2. Variable / Floating Spread
Changes constantly based on market liquidity and volatility. It might be 0.5 pips during calm periods and widen to 10 pips during news events. Most brokers today use this type.
| Type | Pros | Cons |
|---|---|---|
| Fixed | Predictable, good for beginners | Higher cost during normal times |
| Variable | Lower cost during normal times | Unpredictable, widens during news |
Factors Affecting Spread
Spread is not always the same (even on variable spread accounts). It’s affected by several factors:
- Liquidity: High-liquidity pairs (like EUR/USD) have low spreads. Exotic pairs have high spreads.
- Trading Hours: During the London-New York overlap, spreads are at their lowest. Outside main hours, they increase.
- Economic News: During major news (like NFP or interest rate decisions), spreads can widen dramatically and temporarily.
- Market Volatility: In highly volatile periods, brokers widen spreads to protect themselves.
How Spread Affects Your Profits
Spread is a silent cost that eats into your profits. The lower the spread, the easier it is to profit.
Example: If the spread on EUR/USD is 2 pips and you trade 1 standard lot, each pip = $10. So the spread cost = 2 × $10 = $20 per trade. If you open 5 trades per day, that’s $100 daily in spread costs.
💡 Practical Tip
Choose a broker with low spreads on the pairs you trade most. If you use automation like TV2Broker, fast order forwarding helps execute trades before the spread widens, especially during fast-moving markets.
Frequently Asked Questions
What is Spread in Forex?
Spread is the difference between the Bid (sell) price and Ask (buy) price of a currency pair. It represents the primary trading cost charged by most brokers instead of commissions.
What is the difference between fixed and variable spread?
Fixed spread stays constant regardless of market conditions, while variable spread changes based on liquidity and volatility. Most brokers today use variable spreads.
When is the spread high?
Spread is typically high during major economic news releases, outside main trading hours, or in low-liquidity currency pairs.
Is spread the same as commission?
No. Spread is the difference between buy and sell prices — an implicit cost. Commission is a direct fee charged by some brokers (usually on ECN accounts). Some accounts combine a low spread with a small commission.
Want to Forward Your Signals at Maximum Speed?
TV2Broker’s order forwarding speed (under 50ms) helps you get the best prices before spreads widen.