What Is the Spread in Forex and How Is It Calculated?

Every forex quote has two prices, and the gap between them is called the spread. For many retail traders, the spread is the main cost of trading. It is small on each trade, but it adds up quickly, especially if you trade often.

What the spread is

A forex quote shows a bid price and an ask price:

• Bid: the price at which you can sell.
• Ask: the price at which you can buy.

The ask is higher than the bid, and the difference is the spread:

Spread = ask − bid

Assume EUR/USD is quoted at 1.0850 / 1.0851 (illustrative). The spread is 0.0001, or 1 pip. The next lesson, Bid and ask prices, explains how these prices apply when you open and close trades.

Measuring the spread in pips

Convert the price difference into pips using the pair's pip size (0.0001 for most pairs, 0.01 for yen-quoted pairs):

All quotes are illustrative. Brokers quoting five decimals (or three for yen pairs) can show spreads in fractions of a pip.

Turning the spread into money

Spread cost = spread in pips × pip value

For a pair quoted in US dollars, pip value is $10 per standard lot. So with a 1-pip EUR/USD spread:

• 1 lot: 1 × $10 = $10
• 0.2 lots: 1 × $2 = $2
• 0.01 lots: 1 × $0.10 = $0.10

For GBP/JPY with a 3-pip spread, one standard lot costs 3 × 0.01 × 100,000 = 3,000 yen, which your broker converts into your account currency. See What is a pip? for pip values on non-dollar pairs.

Why every trade starts slightly negative

You buy at the ask but your open position is valued at the bid, the price you could sell at. So the moment you open a trade, it shows a loss roughly equal to the spread. The price must move in your favor by at least the spread before the trade breaks even.

Fixed, variable and commission pricing

Brokers price trades in different ways:

• Variable (floating) spreads change with market conditions. They are often very tight in busy periods and wider at quiet times.
• Fixed spreads stay the same in normal conditions, but are usually wider on average, and brokers may still widen them or reject orders in fast markets.
• Raw spread plus commission accounts pass on very tight spreads and charge a separate commission per lot.

Worked example: comparing account types

Assume you trade 1 standard lot of EUR/USD (pip value $10) and compare two illustrative accounts:

Here Account B is cheaper per trade. With different spreads or commissions the answer could reverse, so always compare total cost per lot. The Profit/Loss Calculator can include costs when you test a trade.

What makes spreads wider or narrower

• Liquidity: heavily traded majors usually have tighter spreads than exotics.
• Time of day: spreads often tighten when major sessions overlap and widen when activity is low, such as around the daily rollover. See Forex trading sessions.
• News: spreads can widen sharply just before and after major economic releases.
• Volatility and stress: in fast or uncertain markets, liquidity providers quote wider prices, and orders may suffer slippage.

Common mistakes

• Ignoring spread on short-term trades. A 1-pip spread is a large share of a 5-pip target.
• Assuming the advertised spread is guaranteed. Typical or minimum spreads can differ from what you get in practice.
• Trading through news without checking spreads. Wider spreads can trigger stop-losses unexpectedly.
• Comparing brokers on spread alone. Add commission and other costs.

Summary

The spread is the gap between the ask and bid price and is a cost you pay every time you trade. Measure it in pips, multiply by pip value to get the money cost, and compare total costs including any commission. Spreads change with liquidity, time of day and news, so check them before you trade. Costs reduce returns and add to losses, which is one reason trading carries real risk.