Understanding Forex Spreads: Fixed vs Variable

Every forex trade has a built-in cost: the spread. It's the most fundamental fee in forex trading, yet many traders don't fully understand how it works or how different spread types affect their bottom line. Let's fix that.

What Is a Spread?

The spread is simply the difference between the bid price (what buyers will pay) and the ask price (what sellers are asking). If EUR/USD is quoted at 1.0850/1.0852, the spread is 2 pips — the gap between those two numbers.

When you open a buy trade, you enter at the ask (higher price). When you sell, you exit at the bid (lower price). This means every trade starts slightly in the red. On a standard lot, each pip is worth about $10, so a 2-pip spread costs you roughly $20 per round-trip trade.

The spread is how your broker compensates for connecting you to the market. Think of it as a transaction fee baked into the price rather than charged separately. Some brokers also charge a commission on top of the spread — we'll get to that.

Fixed Spreads

With a fixed spread, the difference between bid and ask stays constant regardless of market conditions. If your broker advertises a 2-pip fixed spread on EUR/USD, that's what you get — during London session peak hours, during the quiet Asian session, and during news events.

Advantages:

• Predictable costs. You know exactly what each trade costs before you open it. Budgeting and strategy backtesting are straightforward.
• No widening during news. While variable spreads can blow out to 10+ pips during major announcements, fixed spreads stay put.
• Simpler for beginners. One less variable to worry about while you're learning.

Disadvantages:

• Generally wider. To guarantee a fixed spread, the broker sets it wider than the average variable spread. During peak liquidity hours, you're paying more than you need to.
• Market making model. Fixed spreads usually come from brokers who act as market makers (taking the other side of your trade). Some traders are uncomfortable with this arrangement, though it's not inherently problematic with a regulated broker.
• Requotes possible. During extreme volatility, even fixed-spread brokers may requote orders — meaning they can't fill you at the displayed price and offer a different one.

Variable Spreads

Variable (or floating) spreads fluctuate based on market liquidity and volatility. During the London-New York overlap, when liquidity is deepest, EUR/USD spreads might tighten to 0.1-0.5 pips. During the Asian session rollover, the same pair might show 1.5-3 pips.

Advantages:

• Tighter during peak hours. If you trade during high-liquidity sessions, variable spreads are typically cheaper than fixed ones.
• More transparent. Variable spreads reflect actual market conditions. What you see is closer to what's happening in the interbank market.
• Often paired with ECN/STP execution. Many variable-spread brokers pass your orders to liquidity providers, reducing potential conflicts of interest.

Disadvantages:

• Unpredictable during events. Major news releases, market opens, and low-liquidity periods can see spreads widen dramatically. A 0.5-pip spread can become 8+ pips in seconds during NFP or a rate decision.
• Harder to backtest. Historical spreads vary, so your backtest results might not accurately reflect real trading costs.
• Requires awareness. You need to know which sessions offer tight spreads and which don't. Check our session hours guide for this.

Raw Spreads + Commission

A third model worth understanding: some brokers offer "raw" or "ECN" accounts where you get the actual interbank spread (which can be 0.0 pips during peak hours) and pay a separate commission per lot.

A typical setup might be:

• Raw spread: 0.0-0.3 pips on EUR/USD
• Commission: $3.50 per lot per side ($7 round-trip)
• Total cost: roughly equivalent to a 0.7-pip spread

For active traders, this is often the cheapest option. The commission is predictable, the spread component is minimal during liquid hours, and you get transparent, market-rate pricing. The total cost is usually lower than either a fixed spread or a standard variable spread account.

Use our fee calculator to compare the total cost across different broker fee structures based on your typical trading volume.

How Spreads Affect Your Trading

The impact of spreads depends heavily on your trading style:

Scalpers trade frequently and target small moves (5-15 pips). For them, spreads are a huge deal. A 2-pip spread eats 20-40% of a 5-pip target. Scalpers need the tightest possible spreads, making raw spread + commission accounts their natural choice.

Day traders targeting 30-100 pip moves feel spreads less intensely. A 1-2 pip spread is a smaller percentage of the target. Still worth minimizing, but not the make-or-break factor.

Swing traders holding for days with 100-300 pip targets barely notice spread differences. A 1.5 vs 0.5 pip spread is irrelevant when your target is 200 pips. For swing traders, overnight swap costs typically matter more than spreads.

What Affects Spread Width?

Several factors influence how wide or narrow spreads are at any given moment:

• Session/time of day: London-New York overlap = tightest. Late Friday / early Monday = widest.
• Currency pair: EUR/USD typically has the tightest spread. Exotic pairs (USD/TRY, EUR/ZAR) have much wider spreads.
• News events: Major announcements cause temporary spread widening, even on normally liquid pairs.
• Market volatility: Unexpected events (geopolitical crises, flash crashes) widen spreads as liquidity providers pull back.
• Your broker: Different brokers access different liquidity pools and add different markups. This is why comparing brokers matters.

Choosing the Right Spread Type

Choose fixed spreads if: You trade during news events, prefer predictable costs, or are just starting out and want simplicity.

Choose variable spreads if: You trade during peak liquidity hours, want the tightest possible pricing, and understand that costs fluctuate.

Choose raw + commission if: You're an active trader, trade primarily during liquid sessions, and want the lowest possible total cost.

Whatever you choose, make sure to look at the total cost of trading — not just the headline spread number. A broker advertising "spreads from 0.0 pips" means nothing if the commission adds the equivalent of 1.5 pips on top. Our broker reviews always show the complete fee picture to help you compare fairly.