Definition
SpreadThe spread is the difference between the ask (buy) price and the bid (sell) price of a currency pair. It is a built-in cost paid on every trade.
Example
If EUR/USD is quoted at 1.0850/1.0851, the spread is 1 pip. On a standard lot, that costs about $10 the moment the trade opens.
In detail
Every quote has two prices. You buy at the higher ask price and sell at the lower bid price. The gap between them is the spread, usually measured in pips.
Spread (pips) = (ask − bid) ÷ pip size
Because you enter on one side and exit on the other, a new position starts with a small loss equal to the spread. Price must move in your favor by at least that amount before you break even.
Fixed vs variable spreads
- Variable (floating) spreads change with market conditions. They are usually tight in liquid sessions and widen during news, at the daily rollover and in quiet markets.
- Fixed spreads stay the same in most conditions, but they are often set wider on average, and some brokers may still requote or adjust them in extreme markets.
Some account types offer very tight raw spreads plus a separate commission per lot. To compare accounts fairly, add the two together.
Example
Assume (illustratively) USD/JPY is quoted at 149.850/149.865.
- Spread: 149.865 − 149.850 = 0.015, or 1.5 pips
- On 2 standard lots, each pip is 1,000 JPY × 2 = 2,000 JPY
- Spread cost: 1.5 × 2,000 = 3,000 JPY, about $20 at 149.86
For a trader making 10 such trades a week, that is roughly $200 in spread cost before any profit or loss on price movement.
What makes spreads wider
- Low liquidity, such as off-peak hours or holidays
- High-impact economic releases
- Less-traded pairs, especially exotics
- Sudden market stress
Why it matters
The spread matters most to short-term traders. A 1-pip spread is minor on a 150-pip target but significant on a 5-pip target, where it consumes 20% of the gain. Checking the spread before you trade, and favoring liquid sessions, is one of the simplest ways to reduce costs. The What Is Spread lesson covers this further.
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Related terms
- Ask PriceThe ask price is the price at which a broker or market maker will sell a currency pair to you, so it is the price you pay when you open a buy trade.
- Bid PriceThe bid price is the price at which the market will buy a currency pair from you, so it is the price you receive when you sell or close a long trade.
- PipA pip is the standard unit for measuring how much a currency pair's price changes: 0.0001 for most pairs and 0.01 for pairs quoted in Japanese yen.
- LiquidityLiquidity is how easily a currency pair can be traded in size without moving its price much. High liquidity usually means tighter spreads and smoother fills.
- SlippageSlippage is the difference between the price you expected for an order and the price at which it was actually filled. It can be negative or positive.