What Is a Spread in Forex? Simple Explanation

The spread is the difference between the price you can buy a currency pair at and the price you can sell it at. It's the most basic cost of forex trading, and it's deducted from your account the moment you open a position. Understanding spreads isn't complicated, but knowing how they affect your trading is worth a few minutes of your time.

The Basics: Bid and Ask

Every currency pair is quoted with two prices:

• Bid price: The price you get when you sell
• Ask price: The price you pay when you buy

The ask is always higher than the bid. The gap between them is the spread.

Example: EUR/USD is quoted at 1.0850 / 1.0852. The bid is 1.0850, the ask is 1.0852, and the spread is 0.2 pips (or 0.00020). If you buy at 1.0852 and immediately sell, you'd sell at 1.0850 — losing 0.2 pips. That's the broker's cut.

What's a Pip?

A pip is the fourth decimal place for most currency pairs (0.0001). For JPY pairs, it's the second decimal place (0.01). When someone says "EUR/USD spread is 1.2 pips," they mean the difference between bid and ask is 0.00012.

Some brokers quote to five decimal places (known as "pipettes" or "fractional pips"). So you might see EUR/USD at 1.08502 / 1.08520 — that's still a 1.8-pip spread, the extra digit just gives more precision.

How Spreads Translate to Real Money

The actual cost depends on your position size:

Lot Size	Units	Cost per Pip (EUR/USD)	Cost of 1.0 Pip Spread
Standard (1.0)	100,000	$10	$10.00
Mini (0.1)	10,000	$1	$1.00
Micro (0.01)	1,000	$0.10	$0.10

If you trade 1 standard lot of EUR/USD with a 1.0 pip spread, you're paying $10 for that trade. Do that 10 times a day and you're spending $100 daily on spreads alone. This is why tighter spreads matter — especially for active traders.

Fixed vs Variable Spreads

Fixed Spreads

Stay the same regardless of market conditions (in theory). A broker might offer EUR/USD at a fixed 1.5 pips. The advantage is predictability — you always know your cost. The disadvantage is that fixed spreads are wider than the average variable spread, and some brokers still widen them during major news events, which makes the "fixed" label misleading.

Variable Spreads

Fluctuate based on market liquidity and volatility. During the London-New York overlap, EUR/USD might trade at 0.1-0.3 pips on a raw account. During the Asian session or before NFP, it might widen to 1-3 pips. Variable spreads are generally cheaper over time but unpredictable in specific moments.

Most experienced traders prefer variable spreads because the average cost is lower. If you're scalping or trading during high-liquidity hours, variable spreads save you money.

Standard vs Raw/ECN Accounts

Brokers typically offer two pricing models:

Standard accounts: Wider spreads, no commission. The broker marks up the spread as their fee. EUR/USD might be 1.0-1.5 pips. Simple and transparent — your only cost is visible in the spread.

Raw/ECN accounts: Near-zero spreads plus a commission per lot. EUR/USD might be 0.0-0.2 pips, but you pay $3-$7 per lot commission. Often cheaper overall, but you need to calculate the total cost (spread + commission) to compare fairly.

Example comparison for 1 standard lot of EUR/USD:

• Standard account: 1.2 pip spread = $12 total cost
• Raw account: 0.1 pip spread + $7 commission = $8 total cost

The raw account is cheaper here by $4 per trade. Multiply that by hundreds of trades and the savings are significant.

What Affects Spread Width

• Currency pair: Major pairs (EUR/USD, GBP/USD, USD/JPY) have the tightest spreads because they're the most liquid. Exotic pairs (USD/TRY, USD/ZAR) have much wider spreads.
• Time of day: Spreads are tightest during the London-New York overlap and widest during the late Asian/early Sydney session.
• News events: Spreads can spike dramatically around major releases like NFP, FOMC decisions, or central bank rate announcements.
• Market volatility: High-volatility periods generally mean wider spreads as liquidity providers protect themselves.
• Broker model: Market makers set their own spreads. STP/ECN brokers pass through interbank spreads (usually tighter) and charge commission.

Practical Takeaways

• Compare brokers on total trading cost (spread + commission), not spread alone
• If you're a scalper or day trader, raw/ECN accounts almost always save money
• If you're a swing trader holding for days, spread differences matter less — swap rates might be more important
• Check spreads during your actual trading hours, not just the "from" number on the broker's website
• Use our broker comparison tool to see side-by-side spread data from actual testing

FAQ

What is a good spread for EUR/USD?

On raw/ECN accounts, 0.0-0.3 pips plus commission is competitive. On standard accounts, 0.8-1.2 pips is reasonable. Above 1.5 pips is on the expensive side.

Do I pay the spread on every trade?

Yes. Every position you open costs the spread immediately. It's the broker's primary revenue source alongside commissions.

Fixed or variable spreads — which is better?

Variable spreads are cheaper on average. Fixed spreads offer predictability but are usually wider. Most experienced traders prefer variable.