What are forex spreads, exactly?

When you open a trading platform, every currency pair shows two prices, not one. The lower price is the bid, which is what you can sell at, and the higher price is the ask (sometimes called the offer), which is what you can buy at. The difference between these two prices is the forex spread.

The spread exists because there is always a buyer and a seller on opposite sides of a price. A market maker or liquidity provider is willing to buy from you slightly below the mid-market price and sell to you slightly above it. That small gap is how they are compensated for quoting prices and taking the other side of trades.

For you as a trader, the spread is a cost. The moment you open a position you are usually slightly in the negative, because you entered at the ask and would have to exit at the bid. The price has to move in your favour by at least the size of the spread before the trade breaks even.

How spreads are measured in pips

Spreads are quoted in pips. A pip is the standard smallest unit of price movement for most currency pairs, and it equals the fourth decimal place (0.0001). For pairs that include the Japanese yen, a pip is the second decimal place (0.01).

Here is an illustrative example. Suppose EUR/USD shows a bid of 1.10000 and an ask of 1.10012. The difference is 0.00012, which is 1.2 pips. Many platforms quote a fifth decimal (the fractional pip or pipette), which is why you often see spreads like 1.2 rather than a whole number.

The cash value of that spread depends on your position size. On a standard lot (100,000 units) of EUR/USD, one pip is worth roughly 10 US dollars, so a 1.2-pip spread costs about 12 US dollars to enter that trade. On smaller mini or micro lots the cost scales down proportionally. If you want to see how pip value changes with lot size and currency, our pip value calculator does the maths for you.

Fixed spreads vs variable spreads

Brokers generally offer one of two spread types. A fixed spread stays the same regardless of market conditions, which makes your entry cost predictable. A variable (or floating) spread moves up and down with live market supply and demand.

Variable spreads tend to be tightest when the market is liquid and active, and they can widen sharply during quiet hours, around major news releases, or in periods of low liquidity. A pair that normally trades at 0.8 pips might briefly widen to several pips during a high-impact economic announcement.

Neither type is automatically better. Fixed spreads offer certainty but are often a little wider on average, while variable spreads can be very tight in normal conditions but unpredictable at the worst moments. Understanding which model your account uses helps you avoid surprises.

Spread vs commission: the real cost of a trade

The spread is not always the whole story. Brokers typically use one of two pricing models. Commission-free (or standard) accounts build their charge entirely into a wider spread, so the spread you see is the full transaction cost. Raw-spread or ECN accounts quote much tighter spreads, sometimes close to zero on major pairs, but add a separate, fixed commission per lot traded.

To compare them fairly you have to add the two together. As an illustrative example, a standard account might quote 1.5 pips with no commission, while a raw account quotes 0.2 pips plus a commission that works out to roughly 0.7 pips round-turn, for a total of about 0.9 pips. In that case the raw account is cheaper, but the only way to know is to total the spread and commission for the pairs you actually trade.

It is also worth remembering that spreads are just one cost among several. Swap or overnight financing, currency conversion, and any inactivity or withdrawal fees all affect the true cost of trading. When you compare brokers, look at the complete fee picture rather than the headline spread alone.

What makes spreads wider or tighter

Liquidity is the biggest driver. Major pairs such as EUR/USD, USD/JPY and GBP/USD are traded in enormous volume and usually carry the tightest spreads. Minor and exotic pairs, which trade far less, tend to have noticeably wider spreads because there are fewer buyers and sellers.

Timing matters too. Spreads are generally tightest during the busy overlap of the London and New York sessions and can widen during the thin liquidity around market open, late in the trading day, weekends, and public holidays. Scheduled news events such as central bank decisions and employment data can cause brief but dramatic widening.

Your broker's pricing model and the size of your trade also play a role. Because spread costs add up quickly for anyone who trades frequently, active and short-term traders often prioritise low-spread accounts. You can compare typical spreads across providers on our list of the lowest-spread forex brokers, or weigh spreads against other features when you compare brokers more broadly.

Why spreads matter for your results

Because the spread is paid on every trade, its impact compounds with how often you trade. A long-term position trader who places a handful of trades a month barely notices a one-pip difference. A scalper opening dozens of positions a day can have spread costs that dwarf any single mistake in strategy.

Spreads also affect where your trade truly breaks even. If you set a tight take-profit target, a wide spread can eat a meaningful slice of it, so the price has to travel further than the chart alone suggests. Factoring the spread into your entry and exit planning keeps your expectations realistic.

Leveraged forex and CFD trading carries a high risk of losing money rapidly, and costs like the spread work against you on every position. Treating the spread as a real, recurring cost rather than an afterthought is part of trading with your eyes open.