what is · beginner
What Is a Spread in Forex? (And How It Quietly Eats Your Profits)
Spreads are the single most overlooked cost in retail trading. Most beginners obsess over commissions and ignore the thing that's quietly bleeding their account on every click.
The spread is the difference between the bid price (what you can sell at) and the ask price (what you can buy at). When you open any forex pair on your platform, you'll see two prices — say EUR/USD at 1.08502 / 1.08510. The 1.08502 is the bid, the 1.08510 is the ask, and the 0.8 pip gap between them is the spread. That tiny gap is what your broker charges you to open a trade, every single time.
Here's why it matters: the spread is a guaranteed loss the second you click buy. If you go long EUR/USD at 1.08510 and immediately close, you'd sell back at 1.08502 — you're already down 0.8 pips. Price has to move 0.8 pips in your favor just to break even. On a single trade with a 50 pip target, that's a 1.6% drag. On 100 trades a month, that drag compounds into hundreds or thousands of dollars depending on lot size.
What's a normal spread? On EUR/USD with a decent broker, expect 0.0-0.5 pips during London/New York overlap. GBP/USD: 0.5-1.5 pips. USD/JPY: 0.5-1 pips. Exotic pairs like USD/ZAR or USD/TRY can run 20-100 pips. Indices: NAS100 around 1-2 points, US30 around 2-4 points. Gold (XAUUSD): 15-30 cents (0.15-0.30 in price). If your broker is charging significantly more than these, you're overpaying.
Spreads also widen at predictable times. Right around major news (NFP, FOMC, CPI), spreads on every pair can blow out 5-10x as market makers protect themselves from volatility. The Asian session has wider spreads on European pairs because liquidity is thin. Sundays at the open are notoriously wide. Pros either avoid trading these windows or factor the cost into the trade plan ahead of time.
Two broker models handle spreads differently. Market maker brokers quote you a fixed or variable spread and pocket the entire amount as their fee. ECN brokers pass through the raw interbank spread (often 0.0-0.2 pips on majors) and charge a small commission per lot on top — usually $3-7 per standard lot round-trip. For active traders, ECN almost always works out cheaper. For low-volume traders, the difference is small enough that other broker features matter more.
Key takeaways
- ✓Spread = bid/ask gap = guaranteed cost on every trade
- ✓Tight pairs run 0.5-1.5 pips, exotics run 20-100 pips
- ✓Spreads widen around news, session opens, and thin liquidity
- ✓ECN brokers usually beat market makers for active traders
- ✓Track total spread cost per month — it adds up fast
Frequently asked
Is a tighter spread always better?+
Mostly yes, but only if the broker is regulated and reliable. A 0.0 pip spread from an unregulated broker who slips you 5 pips on entry is way more expensive than a 0.5 pip spread from a clean ECN. Look at total cost per trade, not just the spread number.
Why did the spread suddenly jump to 8 pips?+
Usually news, low liquidity, or market open/close. Spreads widen when market makers can't predict price reliably — around NFP, FOMC, central bank announcements, the Sunday open, and during thin Asian session hours on European pairs.
What's the difference between spread and commission?+
Spread is built into the price you see — you pay it the second you open the trade. Commission is a separate fee charged per lot on top of the spread. Market makers use spread only. ECN brokers use a tiny spread plus commission. Same idea, different accounting.
How much does the spread cost me per month?+
Roughly: (number of trades) times (avg spread in pips) times (pip value). For a swing trader doing 20 trades a month at 0.8 pip spreads on 0.5 lots, that's 20 times 0.8 times $5 = $80/month. For a scalper doing 200 trades, the same setup is $800/month. Spreads compound fast.