What Is the Spread in Forex? The Bid-Ask Spread Explained

The spread in forex is the difference between the bid price (what a dealer will pay for the base currency) and the ask price (what the dealer charges to sell it). It is measured in pips and is a cost paid on every trade: a position bought at the ask and sold at once at the bid would show an immediate loss equal to the spread. For many retail accounts it is the main way the provider is paid.

Measuring the spread

Take an illustrative quote for EUR/USD of 1.1000 bid and 1.1002 ask. Subtract the bid from the ask and the difference is 0.0002, or two pips. For a yen pair quoted at 150.10 / 150.13, the difference is 0.03, which is three pips because yen pairs count pips at the second decimal. The articles on reading a currency quote and on pip value cover these conventions in more depth.

Many platforms quote an extra decimal place, so a spread may be shown as 1.6 or 0.8 pips rather than a whole number.

Turning pips into money

To see what a spread costs, multiply its size in pips by the value of one pip for the position being opened. For pairs where the US dollar is the quote currency, one pip on a standard lot of 100,000 units is worth 10 dollars, on a mini lot 1 dollar and on a micro lot 10 cents.

Position size	Pip value (USD-quoted pair)	Cost of a 2-pip spread
Standard lot (100,000)	$10	$20
Mini lot (10,000)	$1	$2
Micro lot (1,000)	$0.10	$0.20

The cost is incurred each time a position is opened, so frequent trading multiplies it. The cost is also based on the full position, not on the deposit behind it, which is one reason leverage and costs need to be considered together (see leverage vs margin).

Fixed vs variable spreads

Providers price spreads in one of two broad ways:

• Variable (floating) spreads follow market conditions. They can be very narrow when the market is busy and much wider when it is quiet or turbulent.
• Fixed spreads stay the same in normal conditions, which makes costs easier to predict. They are often set a little wider than the typical variable spread, and the provider's terms may allow them to change in exceptional conditions.

Neither model is cheaper in all circumstances. The comparison depends on when and how often someone trades, and on the small print.

Spread vs commission

Some accounts charge only through the spread. Others offer raw spreads close to the underlying market price and add a separate commission per trade. To compare the two fairly, convert both into the same unit — for example the total cost in money for one round trip on a given position size. Overnight financing charges, which apply to positions held past the daily cut-off, are a separate cost on top of either model.

Why spreads widen

A spread reflects how easy it is for a dealer to find the other side of a trade. When that gets harder, the spread grows. Common causes include:

1. Thin trading hours. Late in the US afternoon and around the daily rollover, fewer participants are active. The overview of forex trading sessions shows when activity normally rises and falls.
2. Major data releases and central bank decisions. Dealers widen prices in the seconds around high-impact news.
3. Less-traded currencies. Exotic pairs usually carry much wider spreads than the major pairs.
4. Market stress. Unexpected political or financial events can widen spreads across the board.
5. Weekend reopening and public holidays. Low participation means wider prices.

A wide spread at the moment an order is filled often appears alongside slippage, where the price obtained differs from the price requested.

The same idea outside trading

Spreads are not only a trading concept. Banks, airport kiosks and card providers that exchange currency for travellers also buy at one rate and sell at another, and the gap is often far wider than in the wholesale market. Comparing the rate offered with the mid-market rate — the midpoint between bid and ask — shows how large that built-in margin is.

Frequently asked questions

Is a zero spread really free?

Accounts advertising spreads near zero usually charge a commission or make money in other ways. Check the total cost, not the headline.

Why is my chart price different from my buying price?

Most charts plot the bid. A purchase is made at the ask, which sits above it by the size of the spread.

Does a narrow spread mean a provider is trustworthy?

No. Spread size says nothing about regulation, financial strength or how client money is protected. Those need to be checked separately.

A general explanation of trading costs, not a comparison or endorsement of any provider. Currency trading carries a significant risk of loss; an independent, qualified adviser can help assess whether it suits you.