What Is the Spread?
Every tradeable instrument has two prices: the bid (the price you can sell at) and the ask (the price you can buy at). The ask is always slightly higher than the bid. The difference between them is the spread.
For example, if EUR/USD is quoted at 1.0850 / 1.0852, the spread is 2 pips (0.0002). This means the moment you open a position, you're already slightly in the red by the width of the spread. The market needs to move in your favour by at least the spread amount before you break even.
Why Spreads Matter
Spreads are the most direct cost of trading. If you're trading frequently — placing 10, 20, or 50 trades per week — even small differences in spread width compound significantly over time. A trader paying 1.6 pips on EUR/USD instead of 0.8 pips is paying double per trade. Over hundreds of trades, that's substantial capital that stays with the broker instead of in your account.
This is why execution pricing improves at higher account tiers. Active traders generate more volume, and tighter spreads are a meaningful incentive.
What Affects Spread Width?
Several factors influence how wide or tight a spread is at any given moment:
- Liquidity — heavily traded pairs like EUR/USD have tighter spreads than exotic pairs like USD/TRY
- Volatility — spreads widen during major news releases, market opens, and low-liquidity periods
- Time of day — spreads are tightest during overlapping trading sessions (London/New York) and widest during the Asian session for most FX pairs
- Broker execution model — STP and ECN brokers typically offer tighter spreads than market makers
Fixed vs Variable Spreads
Some brokers offer fixed spreads that don't change regardless of market conditions. Others offer variable (floating) spreads that fluctuate with market liquidity. Variable spreads are typically tighter during normal conditions but can widen sharply during volatile events.
Most serious brokers use variable spreads because they reflect real market conditions. Fixed spreads often come with wider baseline pricing to compensate the broker for absorbing the risk of volatility.
Key Takeaways
- The spread is the gap between the buy and sell price — it's your cost per trade
- You start every position slightly in the red by the width of the spread
- Tighter spreads save significant money over hundreds of trades
- Spreads widen during volatile events and low-liquidity periods
- Variable spreads are typically tighter than fixed spreads under normal conditions
