A spread is the difference between the buy and sell price of a currency pair, and it's how your broker makes money on every trade you make.

When you look at a forex quote, you see two prices: the bid price (what buyers will pay) and the ask price (what sellers are asking). The spread is the gap between them, measured in pips — the smallest price move in forex, usually 0.0001 for most currency pairs. If EUR/USD is quoted at 1.0850 bid and 1.0852 ask, the spread is 2 pips. That gap is yours to lose the moment you enter a trade.

Spreads matter because they are a real cost. You don't pay a separate commission to most retail forex brokers — instead, the spread is built into every price they show you. On a standard lot (100,000 units of the base currency), a 2-pip spread on EUR/USD costs about $20. On a micro lot (1,000 units), it costs $0.20. The spread is taken immediately; your trade has to move in your favor just to break even.

Key Takeaways

  • A spread is the difference between bid and ask prices, measured in pips, and represents the cost of entering a trade.
  • Spreads vary by currency pair, broker, market conditions, and account type — major pairs like EUR/USD typically have tighter spreads than exotic pairs.
  • Wider spreads during news events or low-liquidity hours can turn a profitable trade into a loss before price movement even helps you.
  • Some brokers offer fixed spreads (same all the time) while others offer variable spreads (tighter during busy hours, wider during slow ones).
  • Comparing spreads across brokers is one of the few ways to reduce your trading costs without changing your strategy.

Why spreads change throughout the day

Spreads are not fixed. They widen and tighten based on how many traders are buying and selling at any given moment. During the London and New York market overlap (roughly 1 p.m. to 5 p.m. UTC), when trading volume is highest, spreads on major pairs shrink because there are plenty of buyers and sellers. EUR/USD might trade at 1 pip. During the Asian session or late evening in New York, when fewer traders are active, the same pair might widen to 3 or 4 pips.

Economic news releases blow spreads wide open. When the U.S. Federal Reserve announces interest rates or employment data, the bid-ask gap can jump from 2 pips to 10 or 20 pips in seconds. Your broker widens the spread to protect themselves against the sudden price swings. If you have a pending order set to execute during a news event, you may fill at a much worse price than you expected — or not fill at all.

Fixed spreads versus variable spreads

Some brokers advertise fixed spreads: EUR/USD is always 2 pips, no matter the time or market condition. This sounds appealing because you know your cost upfront. The catch is that fixed-spread brokers often widen their spreads during volatile periods anyway, or they may not let you trade at all during major news releases. You also typically cannot trade during the first few seconds after a news event, when prices move fastest.

Variable spreads (also called floating spreads) tighten and widen with real market conditions. During calm periods, they may be tighter than fixed spreads — sometimes 0.5 pips on EUR/USD. During news or low-liquidity hours, they widen significantly. Most retail forex brokers use variable spreads because it reflects what actually happens in the market. The trade-off is that your cost per trade is unpredictable, which matters if you scalp (trade very frequently) or trade during volatile times.

How spreads differ by currency pair

Major pairs — EUR/USD, GBP/USD, USD/JPY, USD/CHF — have the tightest spreads because they trade in enormous volume. You can expect 1 to 3 pips on a major pair during normal hours. Minor pairs like EUR/GBP or AUD/CAD trade less frequently and carry spreads of 2 to 5 pips. Exotic pairs like USD/ZAR (U.S. dollar to South African rand) or USD/TRY (U.S. dollar to Turkish lira) have spreads of 10 to 50 pips or more because few traders deal in them.

This matters for your trading plan. If you trade exotic pairs, you need larger price moves to overcome the spread cost. A 10-pip spread on USD/ZAR means your trade has to move 10 pips in your favor just to break even. On EUR/USD with a 2-pip spread, you only need 2 pips. Many new traders discover this the hard way by trading exotic pairs and wondering why they lose money on trades that should have been profitable.

How spreads affect your profit and loss

Every pip of spread is money out of your pocket before you even have a winning trade. On a standard lot, 1 pip equals $10 (for most pairs). A 2-pip spread costs $20. If you trade 10 times a day with a 2-pip spread, you pay $200 in spread costs regardless of whether you win or lose. Over a month of 20 trading days, that is $4,000 in costs just to enter and exit positions.

This is why spread size matters more than most new traders realize. Switching from a broker with 3-pip spreads to one with 1-pip spreads on your main pair saves you $20 per standard lot traded. Over 100 trades, that is $2,000. It is one of the few variables you can control without changing your strategy or taking more risk. Scalpers and day traders feel spread costs acutely because they trade frequently; swing traders and position traders can absorb wider spreads more easily because they hold positions longer.

What to look for when comparing broker spreads

Check the spread on the pairs you actually plan to trade, not just the headline EUR/USD rate. A broker might advertise 0.5-pip spreads on EUR/USD but charge 5 pips on GBP/JPY. Ask whether spreads are fixed or variable, and if variable, what the average spread is during your trading hours. If you trade during the Asian session, spreads will be wider than during London hours — make sure the broker's spreads during your time zone are acceptable.

Also ask what happens during news events. Some brokers widen spreads dramatically or stop accepting trades entirely. Others keep spreads reasonable. If you plan to trade around economic data, this matters. Finally, check whether the broker charges commissions on top of spreads. Some brokers offer tighter spreads but charge a small commission per trade. Do the math: a 0.5-pip spread plus $1 commission per standard lot may cost more than a 2-pip spread with no commission, depending on your lot size and trade frequency.

Frequently Asked Questions

Can I trade forex without paying a spread?

No. Every forex trade involves a spread because that is how brokers make money. You can find brokers with tighter spreads, but you cannot eliminate the spread entirely. Even if a broker claims "zero spreads," they are making money somewhere — usually through commissions, wider spreads during certain hours, or by trading against you.

Why do spreads widen during news releases?

When major economic data is released, prices can move sharply and unpredictably in seconds. Brokers widen spreads to protect themselves against the risk of being caught on the wrong side of a sudden price jump. They also do this to discourage traders from placing orders right before news, which would expose the broker to large losses if the price gaps past your stop-loss.

Is a 1-pip spread always better than a 3-pip spread?

Usually, but not always. A broker with 1-pip spreads might have poor execution, meaning your order fills at a worse price than quoted, or it might widen spreads during volatile times. A broker with 3-pip spreads might have faster, more reliable execution. Compare the total cost of trading with each broker, including execution quality, not just the advertised spread.

Do spreads apply to both buying and selling?

Yes. Whether you are going long (buying) or short (selling), you pay the spread. You buy at the ask price (higher) and sell at the bid price (lower). The difference is the spread cost, regardless of which direction you trade.

Can I reduce my spread costs by trading larger lot sizes?

No. The spread is a percentage of the price, so it costs the same per pip regardless of lot size. A 2-pip spread on a micro lot costs $0.20; on a standard lot it costs $20. The spread percentage stays the same, but your total dollar cost scales with position size.