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Market Foundations + Forex Mechanics · The Basics

The bid-ask spread

Explain why brokers show two prices and what the gap costs you.

3 min read+25 XPLesson 6 of 110
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Market Foundations + Forex Mechanics

The Basics

Lesson 6 of 1105%
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Lesson 6 of 110Market Foundations + Forex MechanicsThe Basics

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Explain why brokers show two prices and what the gap costs you.

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Two prices, one cost

Every tradable quote has two prices. The bid is the price someone is willing to buy from you. The ask is the price someone is willing to sell to you. If you buy, you pay the ask. If you sell, you receive the bid. The difference between those two prices is the spread.

Wick drops a coin labeled 2 pips at a toll gate named Spread, showing that every trade starts by paying the gap between the bid and the ask.SpreadPaid on every trade youopen2 pips$
Wick saysThe spread is a toll you pay every time you enter a trade.

On EUR/USD, a tight ECN-style spread might be around 0.5 pips in calm liquid conditions. A market maker quote might be 1 to 2 pips. During major news, spreads can widen to 5 pips or more. The exact number depends on the broker, account type, time of day, and market conditions.

Wick scoops a 2 pip spread out of a jar labeled 10 pip target, showing that on small targets the spread eats a large part of the possible move.Cost comes off the top10 piptarget2 pip spread
Wick saysWith a 10-pip target and a 2-pip spread, a big slice is gone before you start.

For a $500 account, spread matters because small costs add up fast. If your target is 10 pips and the spread is 2 pips, a meaningful chunk of the trade has already gone to transaction cost. Tighter spread means cheaper trading. Wider spread means your trade starts in a deeper hole.

A meter for EUR/USD spread runs from 0.5 pip when calm to 5 or more pips in news, with the needle in the high coral zone, teaching that spreads widen in busy news.0.5 pip calm5+ pips newsEUR/USD spread?
Wick saysSpreads can stretch from about 0.5 pips when calm to 5 pips or more in big news.

Recap: bid is where you can sell, ask is where you can buy, and the spread is the gap you pay to enter the market.

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Answer before moving on.

0 / 3 answered

1. If you place a buy order, which side of the quote do you pay?

2. What is the spread?

3. Why is 'spread does not matter if you hold long enough' a bad rule?

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