What is the spread in forex?
Every forex quote shows two prices: the bid (the price your broker will buy the base currency from you) and the ask (the price your broker will sell the base currency to you). The spread is the difference between these two prices.
The spread is the primary way brokers earn revenue. Even on a "commission-free" account, you pay the spread every time you open a trade. It is effectively the cost of entering the market.
Spread = Ask price − Bid price
Example: EUR/USD bid 1.10050, ask 1.10052 → Spread = 0.00002 = 0.2 pips
Bid vs ask: how the two prices work
When you see a EUR/USD quote of 1.10050 / 1.10052, it means:
- Bid (1.10050) — you sell EUR at this price. The broker buys from you.
- Ask (1.10052) — you buy EUR at this price. The broker sells to you.
When you open a long (buy) trade, you enter at the ask. If you immediately closed, you would exit at the bid — already 0.2 pips lower. That gap is your cost of entry. The market must move at least 0.2 pips in your favour before you break even.
A currency exchange booth at an airport shows two rates: one to buy foreign currency, one to sell it back. The gap between them is the booth's profit — exactly like the forex spread.
How pips work
A pip (percentage in point) is the standardised unit of price movement in forex. For most currency pairs, 1 pip = 0.0001 (the fourth decimal place). For JPY pairs, 1 pip = 0.01 (the second decimal place).
Most brokers quote prices to 5 decimal places. The fifth decimal is a pipette (one tenth of a pip). A spread of 0.00002 = 0.2 pips = 2 pipettes.
Fixed vs variable spreads
Fixed spreads
The spread stays constant regardless of market conditions. This is predictable — you always know your entry cost. However, fixed spreads are typically wider than variable spreads during calm conditions because the broker prices in the risk of volatility.
Variable (floating) spreads
The spread widens and narrows in real time based on liquidity. During peak trading hours (London–New York overlap), spreads can be extremely tight. During low liquidity or news events, spreads can widen dramatically — sometimes by 10× or more.
For frequent traders: variable spreads on ECN/STP accounts are usually cheaper. For casual traders or those trading around news: fixed spreads offer more certainty. Always compare the average variable spread, not just the minimum advertised.
ECN/STP raw spread accounts vs market makers
ECN/STP brokers route your orders directly to the interbank market. The spread can be as low as 0.0 pips on EUR/USD, but you pay a fixed commission per lot (typically $3.50 per side = $7 round-turn).
Market makers take the other side of your trade internally. They offer wider spreads (typically 0.3–1.5 pips on EUR/USD) but no separate commission. Their profit comes from the spread itself.
For high-frequency traders, raw spread + commission is almost always cheaper. For low-volume traders making a few trades per month, a no-commission account can work out similarly priced.
How to calculate spread cost
Cost = Spread (pips) × Lot size × Pip value
For EUR/USD, 1 standard lot = $10 per pip.
1.0 pip spread on 1 standard lot = $10 cost per trade.
0.2 pip spread on 1 standard lot = $2 cost per trade.
- Find the current spread in pips: (ask − bid) ÷ 0.0001 for most pairs.
- Determine your lot size: standard = 1.0, mini = 0.1, micro = 0.01.
- Multiply: spread × lot × pip value. EUR/USD pip value = $10 per standard lot.
- On a commission account, add the round-turn commission (e.g., $7 for $3.50 each side).
Broker spread comparison (EUR/USD, 2026)
| Broker | Avg spread (EUR/USD) | Commission (per lot) | Account type | Total cost (1 std lot) |
|---|---|---|---|---|
| IC Markets | 0.0 pip raw | $3.50/side ($7 r/t) | ECN | $7.00 |
| Pepperstone | 0.0 pip raw | $3.50/side ($7 r/t) | ECN | $7.00 |
| Exness | 0.3 pip avg | None | Standard | $3.00 |
| XM | 0.6 pip avg | None | Standard | $6.00 |
| IG | 0.6 pip avg | None | Standard | $6.00 |
Spread data based on typical conditions during London session. Actual spreads vary. Always verify with the broker directly.
Tips to minimise spread costs
Trade during London/New York overlap
Liquidity peaks between 13:00–17:00 UTC. Spreads are at their tightest during this window — ideal for short-term traders.
Avoid major news events
NFP, CPI, and central bank decisions cause spreads to spike. Check the economic calendar and widen your stop-loss or stay out entirely.
Use a raw spread account
If you trade more than 10 lots per month, a raw spread (ECN) account almost always costs less than a commission-free account with a 0.6+ pip spread.
Frequently asked questions
What is a spread in forex?
The spread is the difference between the ask price (the price you buy at) and the bid price (the price you sell at). It is expressed in pips and represents the broker's built-in cost for executing your trade. On EUR/USD, a typical spread ranges from 0.0 to 1.0 pips depending on the broker and account type.
What is a good spread for EUR/USD?
A raw spread of 0.0–0.1 pips (ECN account plus commission) is excellent. For commission-free accounts, anything below 0.8 pips is competitive. Avoid brokers offering more than 1.5 pips on EUR/USD during normal market hours — that is unusually high.
Is it better to pay a spread or a commission?
It depends on your trading frequency. High-volume traders (10+ lots/month) almost always save money with a raw spread + commission structure. Casual traders placing a few trades per week may find a commission-free account simpler and similarly priced. Always calculate the total round-turn cost before choosing.
Why do spreads widen?
Spreads widen when market liquidity drops. This happens at the open and close of the New York session, during major economic news releases, over weekends and bank holidays, and in less liquid pairs (exotics). Your broker passes on wider interbank spreads during these times.
How do I compare broker costs accurately?
Always calculate the total round-turn cost: (spread in pips × $10 per pip per standard lot) + commission both ways. A 0.0 pip spread + $7 commission = $7 total. A 0.7 pip spread + no commission = $7 total. They are identical on average — the difference shows up when spreads widen, as raw spread accounts stay near their commission floor while standard accounts can become very expensive during volatility.