Spread in Forex: What It Is and Why It Matters

August 23, 2025 alihostinger2025@gmail.com

Spread in Forex: When you step into the world of Forex trading, one of the first terms you’ll encounter is spread. It may sound technical, but understanding spreads is crucial because they directly affect your profits and losses. Think of it as the cost of doing business in the Forex market—just like paying a small fee to exchange money at the airport, but on a much larger scale.

In this article, we’ll break down what spread in Forex is, why it matters, how it’s calculated, and tips to manage it effectively. Whether you’re a beginner or already trading, this guide will help you trade smarter.

Table of Contents

What Is Spread in Forex?

In simple words, the spread in Forex is the difference between the buying price (ask) and the selling price (bid) of a currency pair.

Bid Price: The price at which you can sell a currency.
Ask Price: The price at which you can buy a currency.
Spread: The difference between the two.

For example:

EUR/USD = 1.1000 / 1.1002
Bid = 1.1000
Ask = 1.1002
Spread = 0.0002 = 2 pips

This means the moment you open a trade, you’re slightly in the negative because of the spread. The market needs to move in your favor by at least 2 pips for you to break even.

Why Does Spread Matter in Forex?

Spreads might look small, but they add up. Imagine trading multiple times a day—each trade has a cost. Lower spreads mean lower trading costs, which is especially important for day traders and scalpers.

Here’s why spread matters:

Direct impact on profits – The wider the spread, the more the market must move in your favor before you profit.
Trading style influence – Scalpers need low spreads since they make small, frequent trades.
Broker revenue – Most Forex brokers earn money from spreads instead of charging commissions.
Market conditions – During high volatility (like news events), spreads often widen.

Types of Spreads in Forex

Not all spreads are the same. They depend on your broker and the market.

Fixed Spread
- The spread stays the same regardless of market conditions.
- Common in market-maker brokers.
- Advantage: predictable trading costs.
- Disadvantage: usually higher than floating spreads.
Variable (Floating) Spread
- The spread changes depending on market volatility.
- Common in ECN and STP brokers.
- Advantage: can be very low during liquid times.
- Disadvantage: can widen significantly during news events.

👉 Example: A broker may offer a fixed spread of 2 pips on EUR/USD, while another may offer variable spreads from 0.1 to 2 pips depending on market activity.

Factors That Affect Forex Spreads

Several things influence whether spreads are tight (small) or wide (large):

Currency Pair – Major pairs (EUR/USD, GBP/USD, USD/JPY) usually have the lowest spreads. Exotic pairs (USD/TRY, USD/ZAR) have much wider spreads.
Market Liquidity – More buyers and sellers = tighter spreads.
Time of Day – Spreads are lowest during overlapping trading sessions (London + New York).
Economic Events – News releases like Non-Farm Payrolls or central bank announcements can widen spreads.
Broker Type – ECN brokers usually offer lower spreads than market makers.

How to Calculate the Cost of Spread

Let’s say you’re trading EUR/USD:

Spread = 2 pips
Lot Size = 1 standard lot = 100,000 units
Value per pip = $10
Cost of spread = 2 pips × $10 = $20 per trade

So, every time you enter and exit, you’re paying the equivalent of $20. Multiply that across dozens of trades, and spreads become a key cost factor in Forex trading.

A Simple Analogy to Understand Spreads

Think of spreads like buying and selling gold jewelry.

A jeweler sells you gold at a slightly higher price than the market value.
If you immediately try to sell it back, you’ll get a slightly lower price.
That difference is like the spread—it’s the jeweler’s profit margin.

Similarly, in Forex, the spread is the broker’s margin for facilitating the trade.

Tips to Minimize Spread Costs

Trade Major Pairs – Stick to EUR/USD, GBP/USD, USD/JPY for the lowest spreads.
Avoid High-Volatility News Times – Spreads often widen during big announcements.
Choose the Right Broker – Look for regulated brokers with competitive spreads.
Pick the Right Account Type – ECN/STP accounts usually offer raw spreads + commissions.
Trade During Peak Hours – London and New York overlap has the tightest spreads.

Spread vs Commission: What’s the Difference?

Some brokers offer zero spreads but charge a commission per trade. Others offer no commission but have higher spreads.

Spread-only model: Easier for beginners to calculate costs.
Commission + low spread model: Often cheaper for high-volume traders.

Example:

Broker A: 2-pip spread, no commission.
Broker B: 0.1-pip spread + $7 commission per lot.
For frequent traders, Broker B may actually cost less.

Internal Linking Suggestions (Forexbar Articles)

What is Forex?
Best Forex Indicators to Watch on MT4/MT5
7 Forex Trading Mistakes to Avoid as a Beginner
How Forex Trading Platforms Compare: Features You Need

External References

Foreign Exchange Market – Wikipedia
Investopedia – Bid-Ask Spread

FAQs About Spread in Forex

1. What is spread in Forex for beginners?
Spread is the difference between the buying (ask) and selling (bid) price of a currency pair.

2. Is a lower spread always better?
Generally, yes—lower spreads mean lower costs. But also consider broker regulation and execution speed.

3. Which currency pairs have the lowest spreads?
Major pairs like EUR/USD, GBP/USD, and USD/JPY usually have the tightest spreads.

4. Why do spreads widen during news?
Market volatility increases uncertainty, so brokers widen spreads to reduce risk.

5. Can I trade Forex with zero spread?
Yes, some brokers offer zero-spread accounts, but they usually charge a commission per trade.

6. How do I know the spread of a currency pair?
Most trading platforms (like MT4/MT5) display bid, ask, and spread information directly.

Conclusion

The spread in Forex may seem small, but it plays a huge role in your trading results. It’s essentially the cost of every trade you make. By understanding how spreads work, choosing the right broker, and trading at the right times, you can reduce your trading costs and keep more profits.

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