What is Spread in Forex?
Spread (spread) is the difference between the best Bid price (the price at which the base currency is sold) and the Ask price (the price at which the base currency is bought) at the same moment in time.
How Does Forex Spread Work?
The minimum spread on trading platforms is set by the market maker. It increases further along the chain to the retail trader, serving as a commission for dealing centers and brokers on every trade.
Spread size indicates market liquidity: higher spreads mean lower liquidity. Popular pairs therefore have small spreads. For example, on EUR/USD quoted at 1.0931/1.0933, the spread for 1 lot is 2 pips (or $20).
Every trade opens with an immediate loss equal to the spread. For a 2-lot long position on EUR/USD at 1.0931/1.0933, the initial loss is $40 (2 pips x 2 lots).
To reach breakeven, prices must move at least 2 pips in your favor. More movement is needed for profit.
Spread acts like a commission deducted on entry. For honest brokers, it’s their main revenue source. Stock exchanges limit spreads to regulate liquidity; trading halts if maximums are hit.
“Spread” can also mean the difference in yields on financial instruments.
Types of Forex Spreads
Forex features two main spread types: fixed and floating.
- Fixed spread
Fixed spreads stay constant regardless of trend speed or supply/demand. Trading is predictable, as you know exactly how much price must move for profit.
- Floating spread
Floating spreads are most common, varying within a range based on market conditions. Brokers quote only the minimum. On popular pairs in calm markets, they range 2-5 pips; during news, they can hit 50+ pips. Avoid for robots, as they can’t adapt quickly.
What Determines Forex Spread Size?
Spread size depends on:
- Currency liquidity
Major pairs have spreads of a few pips (under 10), unlike exotic cross rates where differences reach dozens of pips.
- Trade volumes
Small volumes incur higher spreads due to costs; large ones due to risks.
- Market conditions
Spreads widen during volatility from news or low liquidity on nights/holidays.
- Client status
Brokers offer low spreads to beginners to attract trading.
What is Spread Rebate?
Rebate (spread return) refunds part of the spread as a discount, win or lose. Most brokers offer it; third-party services use IB models.
FAQ
What is a forex spread?
The difference between bid (sell) and ask (buy) prices of a currency pair, measured in pips; it’s the broker’s main fee.
Fixed vs floating spread: which is better?
Fixed offers predictability for manual trading; floating is cheaper in calm markets but widens during volatility, unsuitable for bots.
How does spread affect my trades?
Every position starts in loss by the spread amount; price must move beyond it for breakeven or profit.
