Spread is the difference between the bid (selling) price and ask (buying) price of a currency pair, measured in pips. It is the primary cost of entering a trade for retail forex traders.
How it works: When you look at a currency pair quote, you see two prices. The bid is what a broker will pay you to sell; the ask is what you must pay to buy. The spread is the gap between them. For example, EUR/USD might be quoted at 1.1200 bid / 1.1205 ask, meaning a spread of 5 pips. This 5-pip difference is your cost to enter a position.
Practical implication for trading: Tighter spreads (smaller gaps) cost less to trade; wider spreads cost more. A trader entering and exiting the same position pays the spread twice—once on entry, once on exit. For a day trader making multiple trades daily, even a 1-pip difference in spreads across 10 trades adds up significantly.
Spread types: Fixed spreads stay constant regardless of market conditions, offering predictability. Variable (floating) spreads fluctuate with market liquidity and volatility. During economic announcements or market stress, variable spreads can widen substantially, raising trading costs when volatility is highest.
Spreads also vary between brokers and between different currency pairs. Pairs that trade in higher volume with deeper liquidity typically have tighter spreads.
