What is the Spread in Forex Trading?

Understanding Spreads in Forex

The spread is the difference between the buy price (ask) and sell price (bid) of a currency pair. It's how brokers make money on your trades - think of it as a transaction fee built into every trade.

How Spreads Work

Every currency pair has two prices:

• Bid (Sell price) - The price you can sell at
• Ask (Buy price) - The price you can buy at

Example for EUR/USD:

Types of Spreads

Fixed Spreads - Stay the same regardless of market conditions (usually higher but predictable)

Variable Spreads - Change based on market liquidity and volatility (usually lower during calm markets, wider during news events)

Why Spreads Matter

The spread is your immediate cost when opening a trade:

• You start every trade in a small loss (the spread)
• Price must move beyond the spread for you to profit
• Wider spreads = harder to make profitable trades
• Spreads widen during high volatility (news events, market open/close)

Typical Spread Sizes

Choosing a Broker by Spread

When comparing brokers, consider:

• Lower isn't always better - Check execution quality and regulations too
• Day traders need tight spreads - Making many trades = spreads add up quickly
• Swing traders can handle wider spreads - Holding for days/weeks = spread cost is minimal

Reducing Spread Costs

• Trade during peak liquidity (London–New York overlap) to get tighter spreads.
• Favor major pairs for intraday strategies; exotics suit longer holds.
• Use limit orders at key levels rather than chasing with market orders.
• Evaluate brokers on average live spreads, not “from” marketing numbers.

Spreads naturally widen around news, rollovers, and session handovers. Plan entries away from these windows unless your strategy specifically targets volatility. For algorithmic trading, bake live spread filters into entry logic to avoid trading when costs spike.