Spread
The gap between the bid and the ask. The first cost of any forex trade, paid the moment a position is opened, with worked examples and the conditions that make it widen.
The spread is the difference between the bid (the price at which your broker will buy the base currency from you) and the ask (the price at which your broker will sell it to you). It is the first cost of every forex trade, paid the instant a position is opened, before direction enters the picture.
How to read it
A typical EUR/USD quote looks like 1.0849 / 1.0851. The bid is
1.0849, the ask is 1.0851, the spread is 0.0002 or 2 pips.
If you buy at the ask and immediately try to sell back at the bid,
you are 2 pips down. The price has to move 2 pips in your favour
before you break even.
In money, with a one-mini-lot position on EUR/USD, one pip is $1. A 2-pip spread is $2 paid per round trip. On a standard lot, that is $20. (See What Are Pips and Lots for pip-value mechanics.)
What makes it widen
Spreads are not constant. They are tightest on heavily-traded pairs during deep-liquidity windows, and they widen in response to:
- Time of day. Asian-session spreads on EUR/USD are typically 20-50% wider than London-NY overlap spreads.
- News events. Spreads can triple or quadruple in the seconds around a major release (Non-Farm Payrolls, CPI, FOMC decisions).
- Volatility regimes. During crisis episodes (March 2020, the August 2024 yen unwind), even major-pair spreads can widen meaningfully for sustained periods.
- Pair characteristics. Major pairs (EUR/USD, USD/JPY) carry the tightest spreads. Crosses and exotics are wider, sometimes much wider.
- Broker model. Market-maker brokers usually quote a wider but commission-free spread. ECN/STP brokers quote a tighter raw spread plus a per-lot commission. The total cost is the meaningful number, not either component alone.
Why it matters
Spread is the dominant cost for most retail trading at low to moderate frequency, and it scales linearly with trade count. A strategy that takes four round trips per day at 1.5 pips per trip pays roughly $1,500 per year per mini lot in spread alone, before commissions, swap, or slippage. On a $10,000 account, that is 15% of capital in friction. Many retail systems fail because their gross edge is smaller than the spread they pay.
See Trading Costs Explained for the full cost arithmetic, and Trading Costs Explained §slippage for the related concept of slippage, which is the gap between the price you intended to trade at and the price you actually got.