What is Spread?

The spread is the difference between the bid and ask price of a trading instrument, representing the primary cost of trading in forex and CFD markets.

Last updated: January 2025

Key Takeaways

Spread is the difference between the bid (sell) and ask (buy) price
It represents the cost of trading - you pay the spread when entering a position
Tighter (smaller) spreads mean lower trading costs
Major currency pairs typically have the tightest spreads
Spreads can widen during news events and low liquidity periods
Fixed spreads stay constant, variable spreads fluctuate with market conditions

How Spreads Work

Bid and Ask Prices

Every trading instrument has two prices:

Bid Price (Sell)

The price at which you can sell. Always the lower of the two prices.

Ask Price (Buy)

The price at which you can buy. Always the higher of the two prices.

The spread is the gap between these prices. You always buy at the higher ask price and sell at the lower bid price, which means you start each trade with a small loss equal to the spread.

Types of Spreads

Fixed Spreads

Remain constant regardless of market conditions. Common with market maker brokers.

Variable (Floating) Spreads

Change based on market liquidity and volatility. Common with ECN/STP brokers.

Factors Affecting Spread Size

Liquidity: More liquid pairs (EUR/USD) have tighter spreads
Volatility: Spreads widen during volatile market conditions
Time of day: Spreads are tightest during active trading sessions
Economic news: Major announcements cause temporary spread widening
Broker model: ECN brokers typically offer tighter spreads than market makers

Spread Cost Calculation

You want to buy 1 standard lot (100,000 units) of EUR/USD. The quote shows bid: 1.0848, ask: 1.0850.

Bid Price:1.0848

Price to sell

Ask Price:1.0850

Price to buy

Spread:2 pips

1.0850 - 1.0848 = 0.0002

Pip Value:$10

Standard lot EUR/USD

Position Size:1 lot

100,000 units

Spread Cost:$20

2 pips × $10 per pip = $20 immediate cost when entering the trade

Spread Comparison by Market

Market	Typical Spread	Liquidity	Best Trading Times
EUR/USD	0.6-2 pips	Very High	London/NY overlap
GBP/USD	1-3 pips	High	London session
USD/JPY	0.7-2 pips	Very High	Tokyo/London overlap
EUR/GBP	1.5-4 pips	Medium	London session
USD/ZAR	50-200 pips	Low	London session

Note: Spreads vary by broker and market conditions. These are typical ranges during normal market hours.

Tips to Minimize Spread Costs

• Trade during the most liquid market hours
• Focus on major currency pairs with tight spreads
• Avoid trading during major news releases
• Consider ECN accounts for tighter spreads on larger volumes
• Factor spread costs into your risk/reward calculations
• For scalping, spread costs are critical - choose the tightest spreads available

Calculate Your Trading Costs

Pip Value Calculator

Calculate the cost of spreads in monetary terms

Position Size Calculator

Factor spread costs into position sizing

Frequently Asked Questions

Spread = Ask Price - Bid Price. For example, if EUR/USD has a bid of 1.0848 and ask of 1.0850, the spread is 2 pips (0.0002). To calculate the cost: Spread in pips × Pip Value × Position Size = Total spread cost.