What Is the Forex Spread?
An explanation of the forex spread, what makes it widen or narrow, and why comparing spreads across brokers is trickier than it looks.
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The spread is the difference between the bid price (what you can sell a currency pair for) and the ask price (what you can buy it for) at any given moment. It is quoted in pips, and it represents one of the most direct, ever-present costs of placing a forex trade — every position you open starts out slightly behind by the size of the spread, before the market has moved in your favor or against you at all. The relationship between bid, ask, and spread is covered in more detail elsewhere in this series, but the short version is: the spread is simply the gap between those two prices, expressed in pips.
Why the spread exists
Spreads exist because providing a continuous, two-sided market has a cost, and the spread is how that cost gets recovered — whether by the bank or liquidity provider ultimately pricing the currency pair, or by your broker, which may add its own markup on top of the price it receives from its own liquidity sources. In practice, for a retail trader, the spread you see on your platform is simply the cost built into the price itself, separate from any additional commission the broker might charge on top.
Fixed vs variable spreads
Some brokers offer fixed spreads, which stay the same, or close to it, regardless of market conditions. Others offer variable, or floating, spreads, which widen and narrow depending on liquidity and volatility at any given moment. Variable spreads are far more common among brokers that connect to the wider interbank market, and they tend to be tightest during the most liquid trading hours and widest around major news releases or at the very start and end of the trading week, when liquidity is generally thinner.
What affects spread size
- Liquidity of the pair. Major pairs like EUR/USD typically have the tightest spreads because so many participants are trading them; exotic pairs typically have the widest.
- Time of day. Spreads tend to be tighter when major trading sessions overlap and liquidity is deep, and wider during quieter overnight hours.
- Market volatility. Spreads can widen sharply, sometimes temporarily, around high-impact news events or unexpected market shocks.
- Account type. Many brokers offer a standard account with a wider spread and no separate commission, alongside a raw or ECN-style account with a much tighter spread plus a fixed commission per trade — the two can end up costing a similar amount overall, just structured differently.
Why spreads make broker comparison harder than it looks
Because spreads vary by pair, by time of day, by account type, and by broker, a single advertised number such as “spreads from 0.1 pips” rarely tells the whole story. The pair that number applies to, the account type it requires, and whether a commission is layered on top all matter for the real cost of trading. Two brokers that both advertise tight spreads on their homepage can end up meaningfully different in practice once you account for the specific pairs and account types you would actually use. This is one of the reasons comparing total trading costs, not just headline spread numbers, is worth doing properly — a broker comparison tool can help put different brokers’ spread and commission structures side by side before you choose where to open an account.
Spread as part of your overall cost
The spread is rarely the only cost of trading — commissions, overnight financing charges, and other fees all add up alongside it, which is covered in detail in this site’s fees and costs cluster. But because the spread is paid on essentially every trade, it tends to matter most to frequent or short-term traders, while longer-term traders holding fewer, larger positions may find other costs, like overnight financing, add up to more over time instead.