Web Trader MT5 
You open your trading platform, about to buy EUR/USD, and notice that two prices are displayed. That gap between them? That’s the spread, and it costs you money before your trade moves.
The difference between the bid price (what you can sell at) and the ask price (what you can buy at) is called the forex spread. This amount is the cost of getting into a trade and is how brokers make money when executing a trade.
Understanding spreads is crucial because it affects the profitability of any trade. During an active period, a tight spread of a liquid pair could cost you 1-2 pips. Exotic spread on a pair traded thinly? That might be 20+ pips before you even have begun.
According to the Bank for International Settlements, the forex market trades more than $9.6 trillion in a single day; hence, a slight difference in spreads can quickly accumulate across the millions of retail transactions carried out each day. Follow along as we look into what forex spreads are and why they change!
Quick Answer
- Spread is the difference between the bid (sell) and ask (buy) price
- It is the direct cost of entering any trade
- Fixed spreads remain relatively unchanging; variable spreads vary depending on the market conditions
- Major pairs typically have tighter spreads compared to exotic pairs
- Low liquidity, high volatility, and news events lead to wider spreads
- Cost equals the spread in pips x pip value x lot size
What Are Spreads in Forex?
A spread in forex is the gap between the bid and ask prices of a currency pair. This gap is the primary transaction cost you incur when opening a position.
Bid vs Ask
The price that you can sell a currency pair is the bid. Ask (or offer) is the price at which you can purchase. The forex spread meaning is easy to understand: it is the difference between these two prices.
Suppose that EUR/USD has a bid of 1.0850 and an ask of 1.0852. The spread is 2 pips (0.0002). If you purchase at 1.0852, you have immediately lost 2 pips, since you would have to sell at 1.0850.
It is not a sham; that is how the market operates. You are getting instant access to liquidity.
Why the Spread Exists
Spreads exist because the other side of your trade must have someone. Market makers and liquidity providers quote both the bid and ask prices, earn money on the difference between the two, and allow you to buy and sell immediately.
Greater liquidity implies narrower spreads, and more buyers and sellers mean narrower spreads. Decreased liquidity (such as on minor pairs during the Asian session) implies wider spreads, since fewer market participants are willing to accept the opposite side of your purchase or sale.
How to Calculate Forex Spread Cost
To calculate the forex spread cost, you need to know the spread in pips, the pip value of your position size, and multiply them together; this is what informs you of the instant cost of getting in the trade.
Spread in Pips → Cost Per Trade
The first step is to determine the pip spread. If the EUR/USD bid is 1.0850, and the ask is 1.0852, the spread is 2 pips.
The next step is to calculate the pip value depending on your lot size. For a standard lot (100,000 units) on EUR/USD, one pip is 10 dollars. A mini lot (10,000 units) makes the value of a single pip one dollar. For a micro lot (1,000 units), a 1-pip move is $0.10.
Based on the spread and pip value, the spread cost for one standard lot of the currency pair is 2 pips x $10, or $20. That is your price to get into the business; the price has not yet moved.
Example: 1 Lot vs 0.1 Lot
Suppose you are trading EUR/USD, which has a spread of 2 Pips. At 1 standard lot (100,000 units), it costs you $20 immediately. With 0.1 lots (10,000 units), it costs $2.
Equal percentage cost, varying dollar value. However, the thing is that when you are working on a 10-pip profit, that 2-pip spread has robbed you of 20% of the possible profit.
On a 50-pip target, it’s only 4%. Spread influence is dependent on your targets.
Spread vs Commission
Some brokers pay a spread-only fee, that is, no separate fee, just the difference between the bid and ask. Other brokers impose tight spreads (as little as 0 pips on majors) but add a commission per lot traded.
Neither of them is automatically better. Total cost = spread cost + commission. A 0-pip spread with a $7 commission per lot could be more expensive than a 2-pip spread with no commission. Do the maths for your standard trade size.
Fixed vs Variable Spreads
Fixed/variable spreads indicate whether the difference between the bid and the ask remains fixed or varies with market conditions. Both have disadvantages in terms of predictability versus cost savings, which can be high.
What “Fixed” Usually Means
Fixed spreads remain relatively unchanged irrespective of the market conditions. If a broker is promoting a 2-pip fixed spread on EUR/USD, you will tend to get 2 pips at the London open or on Sunday evening.
“Mostly” is the keyword. Even fixed spreads may widen in the short term in case of extreme volatility or market stress. Look into the terms and conditions; fixed spreads are not typical, and brokers have the right to vary them in the event of significant events.
What “Variable” Means
Variable spreads (sometimes called floating spreads) vary in liquidity and volatility. In liquid hours such as the London/New York overlap, EUR/USD will be 0.5-1.5 pips. However, it could increase to 2-3 pips during quiet Asian sessions.
Variable spreads represent actual market conditions. During active trading hours, they may be lower, but they can rise during news releases or during thin trading. More realistic, less foreseeable.
Typical Forex Spreads
Typical forex spreads depend on the currency pair, time of day, and market conditions. The major forex pairs tend to vary between 0.5 and 3 pips in normal markets, while exotic pairs may exceed 20 pips.
Why Majors Often Have Tighter Spreads Than Exotics
The most traded in the world are the major pairs (EUR/USD, GBP/USD, USD/JPY), which have massive liquidity and hold spreads at a tight range. These pairs are actively traded by banks, institutions, and retail traders, which introduces competition that reduces bid-ask spreads.
Exotic pairs (such as USD/TRY or EUR/ZAR) are much less liquid. A smaller number of participants implies wider spreads, since market makers are more risk-averse when holding positions in thinly traded currencies. Reduced competition, increased costs.
What Makes a “Tight” or “Wide” Spread
“Tight” spreads on major pairs during active sessions usually mean 1-2 pips or less. Anything below 1 pip on EUR/USD during the London hours is considered very tight.
“Wide” is relative to the pair. A 3-pip spread on EUR/USD is wide. A five-pip margin on GBP/JPY may be expected. However, a 15-pip spread on USD/ZAR may end up being tight in that exotic pair.
Context is essential, so compare spreads in the same pair and session, not between different pairs.
Why Are Forex Spreads So High Sometimes?
Forex spreads can become very wide during periods of low liquidity, high volatility, and market stress, and understanding when and why this happens helps you avoid unnecessary and costly trades.
Low Liquidity
Spreads widen when only a few traders are active. Liquidity dry-up and spreads are observed during session transitions (when one major session ends before another opens).
Holidays are worse. Closing US banks during Thanksgiving or UK markets during Christmas can drastically reduce liquidity on major pairs. Normally, spreads of 1-2 pips may shoot up to 5-10 pips or above.
Wider spreads are typical on Sunday night (when markets reopen) until liquidity builds in the Asian session. Trade at such times only when you are in the mood to pay high prices.
High Volatility
Key economic reports (NFP, Fed actions, CPI) cause significant volatility. Price can move between 50 and 100 pips in seconds. In these situations, spreads increase, at times to 5-10 times normal.
Why? Market makers do not know which direction the price will move, so they hedge by widening the bid-ask spread. A 1-pip spread may run to 10 pips within the 30 seconds of the NFP release.
It is costly and hazardous to trade via these events. Spreads are profit eaters, and widening spreads are usually accompanied by slippage (filled at worse prices than they should be).
Market Stress / Sudden Price Gaps
During market stress like geopolitical shocks, unexpected actions by central banks, flash crashes, the spreads may jump to ridiculous values. Everyone wants to get out at the same time, and the bid-ask spread goes off the scale.
Slippage is a significant threat in this case. You could have 1.0850 as your stop loss, but when the price moves through a 20-pip spread, you may be filled at 1.0830 or lower. Slippage and spreading usually occur concurrently during extreme moves.
Where to See Spreads on MT4/MT5
MT4 and MT5 display spreads in the Market Watch window and optionally on charts. Checking current spreads before placing a trade will help ensure you do not take on unnecessary, expensive trades.
Showing the Spread on Chart/Market Watch
Right-clicking a currency pair in Market Watch (the panel displaying currency pairs) will add a column that shows the current spread in pips. This is updated in real time as spreads vary.
On the charts, you may represent the spread in the upper-left corner. Click the right side of the chart, then choose properties, and tick “show ask line” and display spread. The chart will show the bid and ask prices, along with the spread.
Observations of changes in the spreads across the day will reveal trends in the spreads by session and volatility. This consciousness will always make you avoid high-cost trades.
Reading “Forex Broker Spreads”
Forex broker spreads vary depending on the liquidity providers and their business model. Some provide smaller spreads on commissions. Others have broader spreads at no commission.
Compare what you can spot on your platform’s MarketWatch with the general ranges for the same pair and session. If EUR/USD is expected to trade 1-2 pips during the London hours, but your broker always quotes 4-5 pips, that’s information worth considering when calculating the cost.
Looking at advertised spreads is not enough; you also need to see live spreads during the hours when you will actually trade. Marketing statistics and reality do not always go together.
How to Reduce Spread Impact
Reducing spread impact means trading liquid pairs during active sessions, using appropriate order types, and avoiding trading during times of low liquidity when spreads are likely to widen. Strategy and timing are more important than shopping for the best broker.
Trade Liquid Pairs and Active Sessions
The tightest spreads are on EUR/USD, GBP/USD, and USD/JPY between the London and New York sessions, and specifically during the overlap (8 AM- 12 PM EST). Liquidity is most significant, market-maker competition is greatest, and spreads are narrow.
Accepting wider spreads means trading minor pairs during the Asian session or exotic pairs at any time. If that is a price you are comfortable with, then fine. However, do not complain about high spreads when you are buying USD/ZAR at 3 AM Eastern Time.
Use Limit Orders When Appropriate
Market orders are executed at the ask price when buying (or the bid when selling) at the whole spread. Limit orders let you set your entry price, and you may get a better price than with market orders.
This will not wipe out the spread, but will help increase your average price of entry in the long run. The tradeoff? Your order may not go through if the price does not reach your limit.
Use limit orders when you can afford to wait for better prices use market orders when timely execution is more important.
Avoid Trading Right Before/After High-Impact Releases
Close positions or stay flat 15-30 minutes preceding significant news announcements. The widening of spreads begins before the announcement, as liquidity providers unwind their exposure. Following the release, spreads remain wide until volatility subsides, typically 15-30 minutes after the announcement.
Trading in such windows entails paying 3-10x normal spreads and the risk of extreme slippage. The additional cost and execution risk are not often worth the prospective profit. Allow normal conditions to be restored.
Bid vs Ask vs Spread Example
| Bid Price | Ask Price | Spread (Pips) | Your Cost to Enter |
| 1.0850 | 1.0852 | 2 | 2 pips × pip value × lot size |
If you purchase at 1.0852, you are already at a 2-pip loss, as the market shows 1.0850 as the bid (where you would sell).
Factors That Widen Spreads
| Factor | What You’ll Notice | What to Do |
| Low liquidity (holidays, session gaps) | Spreads 2-5× normal size | Avoid trading during these periods |
| High volatility (news events) | Spreads spike temporarily, fast price moves | Close positions before news or wait 30+ min after |
| Market stress (geopolitical shocks) | Extreme spread widening + slippage | Reduce position sizes or exit until conditions normalize |
| Exotic/minor pairs | Consistently wider spreads vs majors | Accept higher costs or stick to major pairs |
Before You Enter a Trade Checklist
- Spread size checked. Is it normal for this pair and this session?
- Volatility/news checked? Have there been any high-impact releases within 30 minutes?
- Lot size + estimated spread cost calculated (pip value × spread x lots)
- Stop-loss and risk limit specified (don’t let the spread surprise you)
Frequently Asked Questions
A: Spreads mean the difference between the bid and ask price. It is the actual cost you pay each time you enter a trade. This is how brokers and market makers make their profit by offering liquidity.
A: Not necessarily. Brokers who offer zero spreads usually charge higher commissions, so the overall transaction cost (spread + commission) matters more than the spread alone. Also consider execution quality and slippage.
A: Spreads widen during news since the liquidity providers decrease exposure in times of unpredictable volatility. They cushion themselves against sudden price shifts by temporarily widening the bid-ask spread until the atmosphere settles.
A: Fixed spreads remain mostly stable regardless of market conditions (though they may widen during extreme events), whereas variable spreads fluctuate continuously with liquidity and volatility.
A: Major pairs such as EUR/USD will generally have a spread of 0.5-2 pips during active London/New York sessions, though the actual spread depends on the broker, time of day, and market environment; there is no universal value considered normal.
A: Right-Click Market Watch and add the “Spread” column to view real-time spreads, or turn on the display of spreads in chart properties to show the current spread on your price charts.
A: Live forex spreads are bid-ask spreads that vary in real time depending on liquidity and volatility. During active markets, they narrow; when markets are thin or a major news event is occurring, they widen.
Final Thoughts
Spreads aren’t some hidden fee brokers sneak past you—they’re the cost of doing business in forex. Yet, that does not imply that you must not pay attention to them. A trader who trades regularly on tight spreads will save a lot more than one who trades randomly on widening spreads.
Monitor session times, do not trade during news or holidays, and do not factor in the spread costs before making trades. These practices will not guarantee profits, but they will prevent you from throwing money away on expenses that could have been easily avoided.
This is not a financial strategy but rather an educational article. Forex trading involves significant risk of loss. Spreads are transaction costs that reduce profitability and depend on market conditions and the broker. Before you trade, consider your level of experience and risk tolerance. Do not invest money you cannot afford to lose!
RISK WARNING: CFDs are complex financial instruments and carry a high risk of losing money rapidly due to leverage. You should ensure you fully understand the risks involved and carefully consider whether you can afford to take the high risk of losing your money before trading.
Disclaimer: The information is provided for educational purposes only and doesn’t take into account your personal objectives, financial circumstances, or needs. It does not constitute investment advice. We encourage you to seek independent advice if necessary. The information has not been prepared in accordance with legal requirements designed to promote the independence of investment research. No representation or warranty is given as to the accuracy or completeness of any information contained within. This material may contain historical or past performance figures and should not be relied on. Furthermore estimates, forward-looking statements, and forecasts cannot be guaranteed. The information on this site and the products and services offered are not intended for distribution to any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
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