Spread

The spread is the difference between the bid price and the ask price of a currency pair. It's measured in pips and represents the primary cost of entering a trade. When you buy at the ask and immediately sell at the bid, you'd lose the spread amount — so your trade needs to move in your favor by at least the spread before you break even.

Spreads vary by pair, broker, and market conditions. EUR/USD typically has the tightest spread — as low as 0.0-0.5 pips with competitive brokers. GBP/JPY might be 1-3 pips. Exotic pairs like USD/TRY can easily be 15-30+ pips. Spreads also widen during volatile events and low-liquidity periods.

There are two pricing models: variable (floating) spreads that change based on market conditions, and fixed spreads that stay constant. Variable spreads are usually tighter during normal conditions but can widen dramatically during news events. Fixed spreads offer predictability but are typically wider than the best variable spreads. For most active traders, variable spreads on an ECN or raw-spread account are the more cost-effective option.