If you’re trading forex, you’ve probably seen terms like “bid price,” “ask price,” and “spread.” But what does spread mean? Simply put, the spread is the difference between the buying price and the selling price of a currency pair. It’s how brokers make money, and it’s an important factor that affects our trading costs. Understanding spreads can help us become smarter traders and improve our profits. Let’s dive in and explore everything we need to know about forex spreads!
In forex trading, the spread is the difference between the bid price (the price at which we can sell) and the ask price (the price at which we can buy) of a currency pair. This difference is measured in pips, the smallest unit of price movement in forex. Brokers use spreads as their primary way to make money, especially in commission-free trading accounts. A lower spread means lower costs for us as traders, which is why understanding and managing spreads is key to making the most of our trades. Keep reading to learn how spreads work, why they change, and how we can minimize them for better trading results.
When we look at a forex quote, we always see two prices: the bid price and the ask price. The bid price is the highest price a buyer is willing to pay for a currency, while the ask price is the lowest price a seller is willing to accept. The difference between these two prices is the spread.
For example, if the EUR/USD pair is quoted at 1.1000/1.1002, the bid price is 1.1000 and the ask price is 1.1002. The spread here is 2 pips. Every time we enter a trade, we pay the spread automatically. If we buy at 1.1002, we need the price to move higher than that before we start making a profit. That’s why spreads are important—they are a built-in cost of trading forex.
Forex spreads come in two main types: fixed and variable (also called floating spreads).
Fixed spreads stay the same, regardless of market conditions. They are usually offered by market maker brokers, who set their prices rather than passing trades directly to the market. Fixed spreads can be beneficial because they provide consistency, but they may widen during high volatility.
Variable spreads, on the other hand, fluctuate depending on market conditions. They are common in ECN (Electronic Communication Network) trading accounts, where prices come directly from liquidity providers. Variable spreads tend to be lower during times of high liquidity (such as during the London and New York trading sessions) and wider during volatile events like news releases.
Understanding the type of spread our broker offers helps us choose the right trading strategy. Scalpers and day traders, for example, often prefer brokers with tight variable spreads, while longer-term traders may not mind fixed spreads as much.
Spreads are not always the same; they widen and tighten throughout the day based on different factors. One of the biggest factors is liquidity—how easily a currency pair can be bought or sold. Major currency pairs like EUR/USD or GBP/USD usually have lower spreads because they are highly liquid. Exotic pairs, such as USD/TRY or EUR/ZAR, have wider spreads because fewer traders are buying and selling them.
Another important factor is market volatility. During major economic announcements, such as interest rate decisions or employment reports, spreads tend to widen. This is because price movements become unpredictable, and brokers adjust spreads to account for the extra risk.
The time of day also affects spread. Forex trading sessions in London and New York have the highest liquidity, meaning spreads are at their lowest. In contrast, during the Asian session or after market hours, spreads tend to be wider because there are fewer active traders.
Some forex brokers charge spreads, while others charge commissions, and some even use a combination of both. Spread-only brokers make their money from the difference between bid and ask prices, so they usually widen spreads slightly.
Commission-based brokers, on the other hand, offer raw spreads (often as low as 0.0 pips) but charge a fixed fee per trade. This model can be more cost-effective for high-volume traders because total trading costs can be lower than with spread-only brokers.
Choosing between spreads and commissions depends on our trading style. If we trade frequently and prefer tight spreads, a commission-based account may be best. If we trade less often, a spread-based account might be simpler and more convenient.
When we start trading forex, one of the first things we notice is the spread. It’s a small number, but it plays a huge role in how much we pay to enter a trade. The spread is the difference between the bid price and the ask price of a currency pair. It’s how brokers make money, and it’s something we need to keep an eye on if we want to reduce our trading costs. While spreads may seem like a minor detail, they can add up quickly, especially for active traders. Let’s dive into the key factors that affect spreads, the difference between spreads and commissions, and how we can minimize our costs to improve profitability.
Forex spreads are constantly changing. If we’ve ever checked a trading platform at different times of the day, we may have noticed that spreads widen and tighten depending on market conditions. One of the biggest reasons for this is liquidity. When more traders are buying and selling a currency pair, there is higher liquidity, and spreads tend to be lower. This is why major currency pairs like EUR/USD and GBP/USD usually have tighter spreads compared to exotic pairs like USD/TRY or EUR/ZAR. Exotic pairs have less trading activity, so brokers increase spreads to manage their risk.
Market volatility is another big factor that impacts spreads. During major economic events, such as central bank interest rate decisions or employment reports, prices can move unpredictably, and brokers may widen spreads to protect themselves from rapid price swings. If we’ve ever tried to trade during a major news event, we might have seen spreads suddenly jump before returning to normal. While news trading can be exciting, it’s important to be aware that wider spreads can increase trading costs during these high-volatility moments.
The time of day also plays a role in determining spread size. Forex operates 24 hours a day, but not all hours are equal in terms of trading volume. The most active trading periods are when the London and New York sessions overlap, as this is when the highest number of traders are active. During these times, spreads tend to be at their lowest. On the other hand, during the Asian session or right before the market closes for the weekend, trading volume drops, and spreads tend to widen.
Since spreads are an unavoidable part of trading, finding ways to reduce them can help us save money and keep more of our profits. One of the best ways to do this is by choosing a broker that offers low spreads. ECN brokers, for example, often provide tighter spreads because they connect traders directly to the market without adding a markup. These brokers usually charge a commission per trade instead of making money through spread markups, which can be more cost-effective for traders who trade frequently.
Another way to keep spreads low is by trading during the most liquid hours. If we enter the market when London and New York sessions are active, we can take advantage of tighter spreads and lower our trading costs. Avoiding times when liquidity is low, such as late at night or during holidays, can also help us avoid unnecessary spread expenses.
Using limit orders instead of market orders is another strategy to manage spread costs. When we place a market order, we buy or sell at the best available price, which means we accept the spread as it is at that moment. But if we use limit orders, we set a specific price at which we want to buy or sell, which can help us avoid entering trades when spreads are unusually wide.
Not all brokers offer the same spreads, so finding the right one can make a big difference in our trading costs. Some brokers specialize in offering tight spreads on major currency pairs, while others focus on providing commission-free trading with slightly higher spreads. ECN brokers generally offer the lowest spreads, but they charge commissions. Market maker brokers, on the other hand, include their fees within the spread, which may be slightly wider but does not require additional commissions.
If we want to trade with minimal spread costs, we should look for brokers that have deep liquidity and competitive pricing. Many top brokers publish their average spreads on their websites, making it easier to compare options. We should also test a broker’s trading platform during different market hours to see how spreads behave in real time.
The type of spread we choose can have a big impact on our trading strategy. If we are scalping or day trading, where we make multiple trades in a short time, spreads matter a lot because each trade involves paying the spread cost. For these strategies, we want the lowest spreads possible, which is why scalpers often prefer brokers with raw spreads and commission-based pricing.
Swing traders and position traders, on the other hand, hold trades for longer periods, so spread costs are not as big of a concern. Since they enter fewer trades, they might not mind slightly wider spreads as long as they are trading with a reliable broker.
Forex spreads work differently compared to spreads in other financial markets like stocks or commodities. In stock trading, spreads are influenced by market depth and the number of buyers and sellers. Some stocks have very tight spreads due to high trading volume, while others with lower liquidity have wider spreads.
In commodities, spreads can be affected by factors such as supply and demand, geopolitical risks, and seasonality. Oil, for example, can have fluctuating spreads depending on news about production levels or economic conditions.
Forex generally offers some of the tightest spreads in the financial markets, especially for major pairs. This makes it an attractive market for traders who want to keep transaction costs low.
Spreads are an essential part of forex trading, and understanding how they work can help us trade smarter and save money. By knowing what affects spreads, choosing the right broker, and trading at the best times, we can reduce our trading costs and improve our profitability. Whether we are scalpers looking for the tightest spreads or swing traders who don’t mind a little variation, making informed decisions about spreads is a key part of successful forex trading. The more we learn, the better prepared we are to make smart trading choices and keep more of our hard-earned profits!
A good spread in forex depends on the currency pair we are trading and the market conditions at that time. Major currency pairs like EUR/USD, GBP/USD, and USD/JPY usually have the tightest spreads, often as low as 0.1 to 1 pip, especially when trading during high liquidity periods like the London and New York sessions. If we are trading exotic or less liquid pairs, spreads tend to be wider, sometimes reaching 10 pips or more. A good spread for us allows us to enter and exit trades with minimal costs. To get the best spreads, we should trade during peak market hours and choose a broker known for offering low spreads.
Forex brokers make money from spreads by charging the difference between the bid and ask price on every trade we take. When we enter a trade, we buy at the ask price and sell at the bid price, meaning we automatically pay the spread as part of the transaction. Some brokers use a market-making model where they set their spreads and act as the counterparty to our trades. Others operate on an ECN (Electronic Communication Network) model, where they pass orders directly to liquidity providers and charge a small commission instead of widening the spread. Whether they use spreads, commissions, or a mix of both, brokers profit from the volume of trades placed by traders like us.
The currency pairs with the lowest spreads are typically the most liquid ones, meaning they have the highest trading volume. The EUR/USD pair is known for having the tightest spreads due to its popularity and deep liquidity. Other pairs with low spreads include USD/JPY, GBP/USD, AUD/USD, and USD/CHF. These major currency pairs attract many traders, keeping spreads competitive. If we trade minor or exotic pairs like USD/TRY or EUR/ZAR, spreads tend to be much higher because there is less trading activity. To get the lowest spreads, we should focus on trading major pairs during busy market hours.
Checking the spread on our trading platform is easy. Most forex brokers display the bid and ask prices for every currency pair on their trading terminals. The spread is simply the difference between these two numbers. If our broker has a spread indicator, we may see it directly displayed on the platform. Another way to check the spread is by opening an order window, where we can compare the bid and ask prices before placing a trade. If we are using an ECN broker, spreads may fluctuate in real time, so it’s a good idea to monitor them during different market hours to see how they change throughout the day.
Yes, forex spreads constantly change based on market conditions. They tend to be lowest during high liquidity periods, such as when the London and New York trading sessions overlap. During times of lower trading activity, such as during the Asian session or late at night, spreads can widen due to lower liquidity. Economic news events also impact spreads significantly. When major reports like Non-Farm Payrolls, interest rate decisions, or GDP releases occur, spreads can spike due to increased volatility. We should always check the economic calendar and be aware of major market events that could cause spreads to widen unexpectedly.
Spreads widen during news events because volatility increases and price movements become unpredictable. During major announcements like central bank decisions or employment reports, many traders enter and exit positions rapidly, leading to sudden shifts in price. Brokers widen spreads to account for the risk of sharp movements that could result in slippage or order execution issues. If we trade during news releases, we should be prepared for wider spreads and possible price jumps. Some traders prefer to wait until the market stabilizes after a news event before placing a trade to avoid paying higher spreads.
A tight spread means there is a small difference between the bid and ask price, making it cheaper for us to enter and exit trades. Tight spreads are common in major currency pairs and during high liquidity periods. A wide spread, on the other hand, means the difference between the bid and ask price is larger, increasing our trading costs. Wide spreads typically occur in less liquid markets, during volatile news events, or when trading exotic currency pairs. If we are short-term traders, such as scalpers or day traders, we should always look for the tightest spreads possible to reduce costs and maximize profits.
Leverage itself does not directly affect spreads, but it does influence our overall trading costs and risk exposure. When we use leverage, we are trading with borrowed money, which magnifies both our potential profits and our losses. Since spreads are a part of every trade we take, higher leverage can make it easier to enter positions but also increase the impact of spread costs on our account balance. If we trade with high leverage and a wide spread, it can take longer for our trade to become profitable because the price has to move further before we break even. Managing leverage wisely and choosing trades with low spreads can help us minimize unnecessary losses.
Don’t know which account will be best for you? Contact us.
VantoFX and V Global Markets are trading names of Vortex LLC, which is incorporated in St Vincent and the Grenadines, number 3433 LLC 2024 by the Registrar of Limited Liability Companies, and registered by the Financial Services Authority, and whose address is Suite 305, Griffith Corporate Centre, PO Box 1510, Beachmont Kingstown, St Vincent and the Grenadines.
The information on this site is not intended for residents of the United States or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
© 2025 Vortex LLC. All rights reserved.