What Is the Spread in Forex? How It Affects Every Trade
The spread is the first cost every forex trade carries. Understanding it changes how you choose pairs and sessions.
Every time you open a forex trade, you start at a small loss equal to the spread. The market must move in your direction by at least that amount before you break even. Understanding the spread is understanding your cost of doing business.
What the spread is
A currency pair always shows two prices: the bid (the price you sell at) and the ask (the price you buy at). The spread is the difference between them.
If EUR/USD shows 1.08500 / 1.08507, the spread is 0.7 pips. You buy at 1.08507 and can immediately sell at 1.08500 — a 0.7-pip cost before the market moves at all.
Fixed vs variable spreads
Fixed spreads stay constant regardless of market conditions. Usually wider than variable spreads during normal hours, but predictable.
Variable spreads change with market conditions. Tight during peak liquidity, wide during low-volume hours and news events. Most ECN and STP brokers offer variable spreads.
When spreads widen
Variable spreads increase significantly:
- During high-impact news releases (NFP, CPI, FOMC)
- During the rollover period (around 22:00–00:00 UTC)
- During the Asian session on European pairs
- On Monday open and Friday close
A EUR/USD spread of 0.5 pips in the London session can become 3–5 pips during NFP. A stop placed close to entry can be triggered by the widening spread alone.
How spread affects profitability
At 10-pip target, a 1.5-pip spread represents 15% of potential gain.
At 50-pip target, the same spread represents 3%.
Scalpers with 5-pip targets pay 30% of their potential gain in spread cost alone. This is why tight spreads matter far more for short-term traders than for swing traders.
Commission accounts vs spread accounts
Spread-only accounts: no separate commission; cost is entirely in the spread. Convenient but usually more expensive.
Raw spread + commission accounts: spreads near zero (0.0–0.2 pips) plus a fixed commission per lot. Usually cheaper for active traders.
To compare: convert everything to cost per standard lot round-turn. A 1-pip spread = $10 per standard lot. A $7 round-trip commission on a 0.1-pip spread = $8 total = less than 1 pip equivalent.
Frequently Asked Questions
Which pairs have the tightest spreads?
EUR/USD consistently has the tightest spreads of any pair — typically 0.1 to 0.8 pips on ECN accounts during peak hours. GBP/USD and USD/JPY follow. Exotic pairs can have spreads of 10–50 pips.
Does spread count as part of my stop loss?
Effectively yes. When you place a buy and set a stop loss, price must move against you by the stop distance plus the spread before the stop triggers. For tight stops, this distinction matters significantly.
Why does my broker advertise 0.0 pip spreads?
Raw or zero-spread accounts still charge commission per trade. The total cost (spread + commission) is what matters, not the spread alone.
Do spreads differ between demo and live accounts?
Sometimes. Some brokers replicate live spreads on demo; others use fixed or narrower demo spreads. Always verify live spread conditions before trading a strategy developed on demo.
Can I trade during news to get a better spread?
No — spreads widen most during and just after high-impact releases. If you want tight spreads, trade during peak liquidity hours away from scheduled news.
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Not financial advice. This article is educational. Trading carries substantial risk and you can lose more than your deposit. See our risk disclaimer.
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