What is spread in forex?
The spread in forex is the difference between the bid price and the ask price of a currency pair. You buy at the higher ask price and sell at the lower bid price, so the spread is a cost you pay on every trade. If EUR/USD is quoted at 1.08500 bid and 1.08512 ask, the spread is 0.00012, or 1.2 pips. On one standard lot that costs $12.
The spread is how many brokers are paid for executing your trades, either on its own or alongside a separate commission. Because it is charged as soon as you open a position, every new trade starts slightly in the red.
Bid, ask and how the spread works
Every forex quote has two prices:
- Bid: the price at which you can sell the base currency.
- Ask (also called the offer): the price at which you can buy the base currency.
The ask is always higher than the bid. When you open a buy trade, you enter at the ask, but your position is valued at the bid, the price you could sell at right now. That gap is why a new long trade immediately shows a small loss equal to the spread. The same happens in reverse for a short trade.
If you are not sure which currency in a pair is the base currency, our guide to currency pairs explains how quotes are read.
How to calculate the spread and its cost
Calculating the spread takes two steps.
- Spread in pips = (ask - bid) / pip size
- Spread cost = spread in pips x pip value per lot x number of lots
Pip size is 0.0001 for most pairs and 0.01 for JPY pairs. If those terms are unfamiliar, start with what a pip is and what a lot is.
Example 1: EUR/USD
Bid 1.08500, ask 1.08512.
- Ask - bid = 0.00012
- 0.00012 / 0.0001 = 1.2 pips
- Cost on 1 standard lot: 1.2 x $10 = $12
- Cost on 0.10 lots: 1.2 x $1 = $1.20
Example 2: USD/JPY
Bid 150.200, ask 150.215.
- Ask - bid = 0.015
- 0.015 / 0.01 = 1.5 pips
- Pip value on 1 standard lot at about 150.20 is 1,000 yen / 150.20, or roughly $6.66
- Cost on 1 standard lot: 1.5 x $6.66 = about $9.99
You pay the spread once per round trip. It is built into your entry price, so there is no separate charge when you close.
Fixed vs variable spreads
Brokers generally offer one of two spread models.
| Variable (floating) spread | Fixed spread | |
|---|---|---|
| How it works | Moves with market liquidity and volatility | Set by the broker and stays the same in most conditions |
| Typical behaviour | Tight in liquid hours, wider around news and quiet periods | Predictable cost, often wider than variable spreads in normal conditions |
| Things to watch | Sudden widening can trigger stops or raise costs | Requotes or changed execution terms during fast markets |
Many brokers also split accounts into two pricing styles. A "standard" style account usually has wider spreads with no separate commission. A "raw" or "ECN" style account usually has tighter spreads plus a fixed commission per lot. To compare them fairly, add the spread cost and the commission together for the same trade size. Specific spreads and commissions change often, so check current figures in our broker comparison.
What makes spreads widen?
Spreads reflect how easy it is to match buyers and sellers. When liquidity drops or uncertainty rises, spreads widen. Common causes include:
- Major news releases. Interest rate decisions, inflation data and jobs reports can widen spreads sharply for a few seconds to minutes.
- Daily rollover. Around 5pm New York time, when the trading day resets and liquidity is thin, spreads often widen briefly.
- Quiet sessions. Spreads are usually tightest when major sessions overlap and wider in quieter hours. See forex market hours for when each session is active.
- Weekend open. The first minutes after the market reopens on Sunday can show wide spreads and price gaps.
- Less traded pairs. Major pairs such as EUR/USD usually have the tightest spreads. Minors are wider, and exotic pairs can be much wider.
Why the spread matters for your strategy
The spread is a fixed hurdle each trade must clear before it makes money. How much that matters depends on how far you expect price to travel.
Compare two traders paying the same 1.2-pip spread:
- A scalper aiming for 5 pips pays 1.2 / 5 = 24% of the target in spread.
- A swing trader aiming for 120 pips pays 1.2 / 120 = 1% of the target in spread.
Short-term styles are far more sensitive to trading costs. If you are considering a fast approach, read our scalping strategy guide with costs in mind, and include spread and commission in any backtest so the results reflect real trading.
Spread and stop-loss placement
On most platforms, charts show the bid price. A buy trade's stop-loss is triggered by the bid, but a sell trade's stop-loss is triggered by the ask. If the spread widens, a short trade can be stopped out even though the bid line on your chart never touched your stop. Leaving a little extra room beyond key levels, and avoiding very tight stops around news, can reduce this problem.
How to keep spread costs down
- Trade liquid pairs during active sessions where possible.
- Be cautious placing market orders just before and after high-impact news.
- Compare total cost (spread plus commission) rather than headline spreads.
- Trade less often if costs are eating a large share of your average win.
Trading forex involves substantial risk of loss, and trading costs such as spreads can reduce or eliminate profits. This guide is for education only and is not financial advice. See our risk disclaimer.