What Is Spread in Forex? Bid, Ask and What It Costs You

Open any trade and the running profit starts slightly negative. That is not a bug or bad timing. It is the spread, the gap between the price you buy at and the price you can sell at, and it is the main thing a forex broker charges you. Small per trade, it is the single biggest cost most active traders pay in a year.

What is the spread in forex?

Every currency pair has two prices at any moment:

• The bid is the price the broker will buy from you, so the price you sell at.
• The ask (or offer) is the price the broker will sell to you, so the price you buy at.

The ask is always higher than the bid. The difference is the spread, and it is quoted in pips.

A EUR/USD quote of 1.08500 / 1.08508 means you can sell at 1.08500 and buy at 1.08508. The spread is 0.00008, which is 0.8 pips. If you buy, the price needs to rise 0.8 pips before you could sell back at what you paid. That is why the trade opens in a small loss.

If you are not confident about counting pips, read what is a pip in forex first. Everything here depends on it.

What the spread costs in money

Spread cost = spread in pips x pip value x lots

The pip value on EUR/USD is $10 per standard lot, so:

You pay it once per trade, on entry, because the exit price already includes it. A trader placing four EUR/USD trades a day at 0.8 pips on one lot pays $32 a day in spread, which is around $7,500 a year before a single pip of profit or loss. The cost is real whether the trades win or lose, which is why the spread should drive how often you trade as much as which pairs you trade.

Typical spreads by pair

Spreads reflect liquidity. The more banks and funds trading a pair, the tighter the gap. Approximate figures for a standard retail account in normal London hours:

Compare these with how far each pair moves in a day. GBP/JPY's 3 pip spread sounds expensive next to EUR/USD's 0.8, but if GBP/JPY has a daily range of 150 pips and EUR/USD 70, the spread is a similar share of the available move. The volatility guide explains how to read the daily range in pips.

When spreads widen

A spread is only as tight as the number of participants quoting. It widens when they step back.

• Around major news. In the seconds before and after a US jobs report, inflation print or rate decision, spreads on even EUR/USD can jump from 0.8 to 5, 10 or more pips. Check the economic calendar before you trade into a release.
• At the daily rollover. Around 10pm UK time (5pm New York) the banks roll their books and liquidity thins for a few minutes. Spreads spike, and stops placed too close can be hit on nothing but the spread.
• Sunday evening open and late Friday. The first hour after the Sunday open and the last hour on Friday are thin.
• Bank holidays. When London or New York is off, the pairs they dominate trade wide all day.
• Flash events. On a genuine liquidity gap, as in the 2016 sterling flash crash, spreads can briefly disappear altogether and orders fill wherever there is a price.

The practical rule: the tighter your stop, the more the spread matters. A 10 pip stop with a spread that widens to 6 pips at rollover has effectively become a 4 pip stop. Swing traders holding for days barely notice. Scalpers live and die by it.

Fixed, variable and raw spreads

Brokers package the spread in three ways.

Variable (floating) spreads are the default. The spread tracks the real market, tight in London, wider overnight and around news.

Fixed spreads stay constant whatever the market is doing, usually at a higher level than the variable average. You pay more on quiet days for predictability on busy ones. Some fixed-spread brokers will requote or widen anyway in extreme conditions, so read the terms.

Raw or zero spread accounts pass through the interbank spread, often 0.1 to 0.3 pips on EUR/USD, and charge a commission instead, commonly $5 to $7 per standard lot per round turn. To compare with a standard account, convert the commission to pips: $7 per lot round turn is $7 / $10 per pip = 0.7 pips. A raw account at 0.2 pips plus $7 commission is therefore about 0.9 pips all in, roughly the same as a 0.9 pip standard account, but with the advantage that the spread does not widen as much on news.

How the spread hits your stop and target

Your chart almost always shows the bid price. This matters for where orders trigger.

• A long position closes at the bid, so your stop and target fire exactly where the chart shows them.
• A short position closes at the ask, which sits one spread above the chart. A short's stop is hit when the ask reaches it, so the chart can appear to stay a pip or two below your stop and still take you out.

On a 1 pip spread this is trivia. On a 20 pip exotic spread, or a major during news, it is the difference between a trade that worked and one that stopped out on the spread alone. Give short stops the extra room, and never place a stop inside the spread of the pair you are trading.

Spread and your strategy

The spread sets a floor on how often you can trade and how small a target you can aim for.

A target of 5 pips on a 1 pip spread hands 20% of every win to the broker, and you need to win a lot more than you lose. A target of 50 pips on the same spread gives up 2%. That is why most profitable retail strategies work on longer holds: the costs stop mattering. The risk reward calculator will show how a 1 pip spread changes the win rate you need at each target size.

Combine the spread with swap, the overnight financing charge, and you have the complete cost of a trade. Spread is paid once at entry and matters most for short holds. Swap is paid nightly and matters most for long ones. Know both, and you know what your strategy has to beat.

Checklist before you click

1. What is the spread right now, in pips? Look at the quote, not the advertised minimum.
2. What is that in cash on my size? Spread x pip value x lots.
3. Is anything on the calendar in the next hour that will widen it?
4. Is my stop at least several spreads away from the price, especially on a short?
5. Does my target leave room after the spread for the trade to be worth taking?

Five seconds of arithmetic, and the first cost of every trade stops being a surprise.