Before you read on: this article is general education, not financial advice. It does not consider your objectives, finances or experience. Do your own research, check any broker on the register of its regulator, and speak to an independent adviser if you are unsure.
Last updated 29 October 2026.
Every forex trade has two prices. The bid is the price at which you can sell, and the ask is the price at which you can buy. The gap between them is the spread, and it is a cost you pay on every trade. Understanding the spread is essential before you calculate profit, because it changes the price a trade must move before it makes money.
Bid and ask
The bid is the lower price. The ask is the higher price. If EUR/USD is quoted at 1.0850 bid and 1.0852 ask, you buy at 1.0852 and sell at 1.0850. Both prices are shown on your platform, usually next to each other.
What the spread is
The spread is the difference between the ask and the bid. In the example above, the spread is 2 pips. When you open a position, you start at a small loss equal to the spread, because your entry price is the ask for a buy, and the market must move up by the spread before you break even.
Worked example: you buy one mini lot of EUR/USD at 1.0852 ask. The bid is 1.0850. To close at break-even, the price must reach 1.0852 or higher on the bid side. That is a 2-pip move, or about $2 on a mini lot, before any profit.
How spreads are set
Brokers set spreads in different ways. Some use a market-based price from their liquidity providers and add a markup. Others quote a fixed spread that does not change, though that is less common in active markets. ECN and raw-spread accounts usually show tighter spreads but charge a separate commission per trade.
Spreads change with market conditions. They are usually narrowest during busy sessions and widest during the weekend open, around major news and in thin markets. A quoted typical spread is an average, not a guarantee.
Comparing the cost of different accounts
To compare accounts, add the spread and any commission and convert both to the same unit. A broker with a 0.8-pip spread and no commission may cost less than one with a 0.2-pip spread and a commission equal to 1 pip, depending on your trade size. Always compare total cost per trade, not the headline spread alone.
Why the spread matters for short-term trading
The spread is paid on every trade. A trader who makes 20 trades a day with a 1-pip spread pays 20 pips in spread before any market move. That is why frequent trading can lose money even if the trader is right about direction more often than not.
Worked example: a day of trading
Suppose you trade one mini lot ten times in a day, with an average spread of 1.5 pips. The total spread cost is 15 pips, or about $15, on a mini lot where each pip is worth $1. If your gross profit before spreads was $12, the net result is a loss of $3. The spread turned a winning day into a losing one.
Spreads and swaps
Spreads are the entry cost. Swaps are overnight charges or credits for holding a position past the daily rollover time. Both reduce returns, and swaps can be positive or negative depending on interest-rate differences. Check your broker’s swap table if you plan to hold trades for more than a day.
Practice exercise
On a demo account, note the bid and ask for EUR/USD at three different times: the London open, the middle of the day, and the late New York session. Record the spread each time and calculate the cost of one mini lot.
Summary
The bid and ask are the two prices you trade against. The spread is the cost of entering a trade, and it must be overcome before a position is profitable. Compare total costs across accounts, and remember that spreads widen in volatile and thin conditions.
Fixed and variable spreads
Brokers use two broad approaches. A fixed spread stays the same regardless of market conditions, which makes costs predictable, though it is less common on major pairs. A variable spread moves with market liquidity and volatility, and is usually narrower in calm, busy markets.
Some accounts use raw or ECN pricing, where the spread is very tight and a separate commission is charged per trade. The all-in cost is the spread plus the commission.
Break-even: the move you need before you profit
Because you enter at the ask on a buy, the market must rise by the spread before your position is in profit. The break-even point is your entry price plus the spread, and for a sell it is your entry price minus the spread.
Worked example: you buy EUR/USD at 1.0852 with a spread of 2 pips. You close a buy at the bid, so the bid must climb back to 1.0852, the price you paid, before you break even. Any move beyond that is profit.
Comparing two brokers
Suppose Broker A offers a 0.8-pip spread on EUR/USD with no commission. Broker B offers a 0.2-pip spread and charges a commission of $3.50 per standard lot per side, which is $7 for a round trip.
On one standard lot, Broker A costs 0.8 pips, which is $8 in spread. Broker B costs 0.2 pips, which is $2, plus $7 in commission, for a total of $9. Broker A is slightly cheaper for this trade size. Repeat the calculation for your own typical trade size and frequency before choosing.
Spreads during news and at the weekend open
Spreads widen sharply around major scheduled releases and at the weekend reopening. A trade that looks cheap during a quiet hour may be expensive in the minutes before a central-bank decision. Some traders avoid placing new orders in the few minutes around major news, because fills can be far from the quoted price.
Spread and trading style
Spread matters most for trades that are small in pip terms or held for a short time. A scalper aiming for 3 pips on each trade can be defeated by a 1.5-pip spread. A position trader aiming for 150 pips is barely affected by the same spread. Choose a style that suits the cost structure, or accept that costs will consume more of each result.
Frequently asked questions
Why does my broker show a different spread from the one in this article? Spreads vary by broker, time of day and account type. The figures in articles are examples, and the platform shows the live spread.
Is a zero-spread account free? Usually not. Zero-spread accounts often charge a commission, so the cost appears elsewhere.
How do I measure spread costs over a month? Record the spread and commission for each trade, convert them to money, and add them up. Compare the total with your gross profit or loss.
Sources and further reading
We checked the regulatory claims in this article against the following primary sources. Rules change, so check the current version before you rely on any figure.
ESMA press release, 27 March 2018 (leverage caps, 50% close-out and negative balance protection for EU retail CFD clients, and the 74-89% loss statistic).
FCA statement on the ESMA measures (the UK position).
FCA policy statement PS19/18 (permanent UK restrictions on retail CFDs).
Pip and lot definitions are market conventions rather than regulatory rules. Check the contract specification for each instrument with your broker.
Risk warning: trading forex and CFDs involves a high risk of loss, and most retail accounts lose money. This article is general education, not financial advice. Read our disclaimer.