What is Spread in Forex? Cost of Every Trade Explained
TL;DR: The spread is the difference between the price a broker will buy a currency from you and the price they will sell it to you. It is the most common trading cost in forex, and understanding it helps you choose the right broker, the right pairs, and the right times to trade.**
The Bid, the Ask, and the Gap Between Them
Every forex quote shows two prices. The bid is the price at which your broker will buy the base currency from you. The ask (sometimes called the offer) is the price at which they will sell it to you. You always buy at the ask and sell at the bid.
Take EUR/USD quoted at 1.08502 / 1.08515. The bid is 1.08502 and the ask is 1.08515. The difference is 0.00013, or 1.3 pips. That 1.3-pip gap is the spread.
The moment you open a trade, you are already 1.3 pips in the red. The market has to move in your favor by at least that amount before you break even. This is not a fee that appears on an invoice. It is built directly into the price, which is why many beginners do not notice it at first.
How Spreads Are Measured
Spreads are quoted in pips. For most pairs, one pip is the fourth decimal place (0.0001). For JPY pairs, one pip is the second decimal place (0.01). Some brokers now quote in fractional pips (pipettes), which are tenths of a pip, so you may see a spread listed as 1.3 rather than 1 or 2.
To convert the spread into a dollar cost, multiply the pip value by the number of lots you are trading. On a standard lot of EUR/USD, one pip is worth roughly ten US dollars. A 1.3-pip spread on one standard lot therefore costs about thirteen dollars per round trip, before any additional commission.
Fixed vs Variable Spread: Which One Actually Costs Less?
This is one of the most common questions beginners ask, and the answer depends on when and how you trade.
Fixed Spreads
A fixed spread stays the same regardless of market conditions. If your broker advertises a 2-pip fixed spread on EUR/USD, you pay 2 pips whether the London session is in full swing or whether it is the quiet hour before the New York close.
Fixed spreads are offered mainly by market makers, brokers who act as the counterparty to your trades rather than routing them to an interbank desk. The predictability is useful for beginners who are still getting used to calculating costs. The trade-off is that fixed spreads are usually wider than the tightest variable spreads available during active market hours.
Variable Spreads
A variable spread (also called a floating spread) changes in real time based on liquidity and volatility. During the overlap of the London and New York sessions, when trading volume on major pairs is highest, variable spreads on EUR/USD can drop below one pip. During off-peak hours, the same spread can widen to three, four, or more pips. Around major news events, spreads can spike dramatically for a few seconds.
Variable spreads are the norm at ECN and STP brokers. If you trade during liquid hours and avoid opening positions right before high-impact news, variable spreads will often cost you less than fixed ones over time.
The Hidden Cost of Requotes and Slippage
With fixed spreads, brokers sometimes protect themselves during fast markets by issuing a requote: the trade you requested is no longer available at that price, and you are offered a new one. With variable spreads, you get the fill but the spread itself may have widened significantly. Neither is free of friction. Knowing which type your broker uses helps you set realistic expectations.
What is a Normal Forex Spread? Typical Ranges by Pair
Spreads vary considerably depending on the currency pair and the time of day.
Major pairs (EUR/USD, GBP/USD, USD/JPY, USD/CHF) carry the lowest spreads because they have the deepest liquidity. Variable spreads on EUR/USD during peak hours often sit between 0.1 and 1.5 pips at a competitive ECN broker. Fixed-spread market makers typically charge 1 to 3 pips on the same pair.
Minor pairs (EUR/GBP, EUR/JPY, GBP/JPY) have moderate liquidity. Spreads commonly range from 1 to 4 pips, widening more sharply during off-hours.
Exotic pairs (USD/TRY, USD/ZAR, EUR/PLN) can carry spreads of 10 to 50 pips or more. The combination of lower liquidity and higher volatility makes exotic pairs expensive to trade frequently.
How Time of Day Affects Spread
Forex spreads are not static throughout the 24-hour trading day. Three windows matter most:
- Asian session (Tokyo): Lower volatility, thinner liquidity, wider spreads on European and American pairs.
- London session open: Liquidity surges. Spreads on EUR/USD and GBP/USD typically reach their tightest point of the day.
- London/New York overlap (roughly 1:00 PM to 5:00 PM London time): The highest volume window. Competitive brokers often quote their lowest variable spreads here.
- Late New York / pre-Tokyo gap: Volume drops sharply. Spreads widen again, sometimes significantly.
If you are trading the same pair every day at the same time, check your broker's historical spread data for that hour. A pattern often emerges that is worth factoring into your session planning.
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How Does Spread in Forex Affect Different Trading Styles?
The answer is: enormously, and in opposite directions depending on your approach.
Spread and Scalping
Scalpers aim for small price moves, sometimes just a few pips per trade, and may execute dozens of trades in a session. For a scalper, the spread is the single biggest cost variable in the business. A 2-pip spread on a trade targeting 5 pips means 40% of the target profit is consumed before price moves a tick. Scalpers need tight spreads and need them consistently, which is why most serious scalpers use ECN brokers during peak London or London/New York overlap hours.
If you scalp on a fixed-spread market maker with requotes, the math frequently does not work. Even a handful of widened fills or missed entries can erase an otherwise profitable session.
Spread and Day Trading
Day traders hold positions for minutes to hours and target moves of 10 to 50 pips or more. The spread still matters but it represents a smaller fraction of the target. A 1.5-pip spread on a 30-pip target is a 5% cost, which is manageable if the setup has an edge. Day traders benefit from timing entries during liquid sessions, but a slightly wider spread during off-hours is less catastrophic than it is for a scalper.
Spread and Swing Trading
Swing traders hold positions for days to weeks and target moves measured in tens or hundreds of pips. For them, the spread is almost negligible relative to the expected move. A 2-pip entry cost on a 200-pip trade is 1%. Swing traders can afford to be less picky about the exact time of entry and can use a wider range of brokers without dramatically hurting their returns.
This does not mean swing traders should ignore spread entirely. If you are frequently entering and exiting the same pair, those costs accumulate. But spread is rarely the deciding factor in whether a swing strategy is profitable.
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ECN Brokers vs Market Makers: Who Actually Gives You a Better Spread?
Market Makers
A market maker sets its own bid and ask prices and acts as the counterparty to your trade. They profit partly from the spread and partly from internal risk management. Spreads are often fixed or semi-fixed. Because the broker internalizes the trade, there is a potential conflict of interest, though regulated market makers are required to offer best execution and are routinely audited.
For beginners trading micro or mini lots, market makers often have lower minimum deposits and simpler account structures. The wider spread is partly the cost of that convenience.
ECN Brokers
An ECN (Electronic Communication Network) broker routes your order to a pool of liquidity providers: banks, institutions, and other traders. You see real market prices with very tight raw spreads, sometimes as low as 0 pips on EUR/USD during peak hours. However, ECN brokers charge a commission per lot traded, typically a fixed dollar amount per standard lot per side.
To compare costs fairly, add the commission back into the effective spread. A raw spread of 0.2 pips plus a commission that equates to 0.6 pips gives an all-in cost of 0.8 pips. That is often cheaper than a 1.5-pip no-commission fixed spread, but you need to do the arithmetic for your broker's specific rates and your typical lot size.
STP Brokers
Straight-Through Processing (STP) brokers are a middle ground. They pass orders directly to liquidity providers without a dealing desk but mark up the raw spread slightly rather than charging a separate commission. Variable spreads are the norm. Many retail brokers operate on a hybrid ECN/STP model.
Does a People Also Ask Question Belong Here?
What Is Considered a Good Spread in Forex?
For major pairs like EUR/USD during active sessions, a spread under 1 pip is competitive at an ECN broker. For a no-commission account, 1 to 1.5 pips is reasonable. Anything above 2 pips on EUR/USD during peak hours is on the expensive side and worth comparing to alternatives. For minor pairs, 2 to 3 pips is typical at a decent broker. Exotic pairs are inherently expensive, and even a well-priced broker may charge 10 pips or more.
The benchmark that matters most is consistency. A broker advertising 0.1-pip spreads but spiking to 10 pips during news events or illiquid hours is not better than one offering a stable 1-pip spread.
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FAQ
Q: Does spread count as a commission? A: Not exactly. A commission is a separate fee charged per trade or per lot. The spread is the built-in cost between the bid and ask price. Some brokers charge both. Others charge only a spread with no separate commission. When comparing brokers, look at the all-in cost: spread plus any commissions combined.
Q: Can the spread work against an open trade? A: Yes. If you enter a trade and the spread widens before you close it, your exit cost increases. This is most relevant if you hold positions through news events or into illiquid hours where spreads can spike sharply for short periods.
Q: Why does the spread widen around news events? A: Liquidity providers pull back or widen their quotes during periods of high uncertainty because the risk of being on the wrong side of a large move increases. Less liquidity means a wider gap between the best bid and best ask in the market. Your broker passes some or all of that widening on to you.
Q: Is a zero-spread account really free to trade? A: No. Zero-spread accounts always charge a commission per lot. The commission is the broker's revenue. In some cases the all-in cost is lower than a standard account, but you need to calculate total cost at your typical lot size to know for certain.
Q: Do spreads differ between demo and live accounts? A: They can. Some brokers show tighter spreads on demo accounts than what live account holders actually receive. Before committing real capital, review the broker's live execution statistics or look for verified third-party spread tracking data for that broker.
The Bottom Line
The spread is not a hidden trap, but it is a real and constant cost that every forex trader pays on every trade. Understanding what drives it, when it is tightest, and how it affects different strategies puts you in a position to make deliberate choices rather than discovering the drag on your account after the fact.
If you are a scalper, spread is a primary concern and should influence your broker choice and session timing more than almost any other factor. If you are a swing trader, it matters less per trade but still adds up over time. Whatever your style, learn to calculate your all-in cost per trade, compare brokers on that number, and choose trading hours that give you the most favorable conditions for your approach.