What Is Spread in Forex Trading?

The spread in forex trading is the difference between the buy price (ask) and the sell price (bid) of a currency pair. It is the primary cost of trading forex and is measured in pips — the smallest price increment for most currency pairs.

When you open a trade, you immediately start at a small loss equal to the spread. For the trade to become profitable, the market must move in your favor by at least the amount of the spread.

How the Forex Spread Works: A Simple Example

Let's say you want to trade EUR/USD:

• Bid price (sell): 1.08500
• Ask price (buy): 1.08503
• Spread: 0.3 pips

If you open a buy (long) trade at 1.08503, the market must rise above 1.08503 before your trade becomes profitable. The 0.3-pip spread is the broker's cut for executing your trade.

On a standard lot (100,000 units), 1 pip = $10. So a 1-pip spread costs $10 per trade on EUR/USD.

Types of Forex Spreads

Fixed Spread

A fixed spread stays constant regardless of market conditions. Brokers that offer fixed spreads are typically market makers. Fixed spreads provide cost predictability, which is useful during volatile market hours.

Floating (Variable) Spread

A floating spread changes constantly based on market liquidity and volatility. During quiet market hours, the spread may be as tight as 0.1 pips. During major news events or low-liquidity sessions, it can widen to 5 pips or more.

Most ECN brokers offer floating spreads that are tighter on average than fixed spreads under normal conditions.

Spread Comparison: Major vs. Minor Currency Pairs

Major pairs (EUR/USD, GBP/USD, USD/JPY) have the tightest spreads due to high liquidity. Exotic pairs carry much wider spreads due to lower trading volume.

Why the Forex Spread Matters for Your Trading

The spread affects your profitability in several ways:

• Scalpers who open dozens of trades per day are extremely sensitive to spread size — even 0.1 pips makes a significant difference at scale.
• Swing traders holding positions for days are less affected by spread since they target larger price moves.
• News traders must be careful because spreads can widen sharply just before and after major economic releases like NFP (Non-Farm Payrolls) or central bank decisions.

How Brokers Make Money From Spreads

Brokers profit from the spread in two main ways:

• Market makers take the opposite side of your trade and pocket the spread directly.
• ECN brokers pass the raw interbank spread to you and charge a separate commission per lot traded.

For high-frequency traders, comparing the total cost (spread + commission) is more meaningful than looking at the spread alone.

Tips to Minimize Spread Costs

• Trade during peak liquidity hours — the London–New York session overlap (13:00–17:00 GMT) offers the tightest spreads.
• Stick to major currency pairs with the lowest spreads.
• Use an ECN account if you trade high volumes and need the tightest possible pricing.
• Avoid trading during major news events unless your strategy specifically targets volatility.

Understanding the forex spread is essential for calculating your real trading costs and choosing the right broker for your style.

Image suggestion: Chart showing bid/ask price with spread highlighted on a EUR/USD candlestick chart.