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The spread is the difference between the bid and ask price of a currency pair, expressed in pips. It is the unavoidable transaction cost on every trade — and the single most-misunderstood number a retail trader pays.
How to read a forex quote
EUR/USD quote: 1.08501 / 1.08515. The bid (1.08501) is what you sell at. The ask (1.08515) is what you buy at. The difference — 0.00014 — is 1.4 pips. On 1 standard lot, that's ~$14 in spread cost.
Fixed vs variable spreads
| Fixed | Variable | |
|---|---|---|
| Who offers | Market makers (B-book) | STP / ECN / NDD brokers |
| EUR/USD typical | 2–3 pips | 0.1–1.5 pips |
| During news | Stays put | Can widen 3–10× |
| Best for | Pure beginners; predictability | Active traders; transparency |
Execution model — why it matters more than the headline spread
- Market maker (Dealing Desk) — broker is your counterparty. They quote a fixed spread and warehouse risk. Conflict of interest in B-book operations.
- STP (Straight-Through Processing) — broker passes orders to liquidity providers and marks up the spread by a small amount.
- ECN — orders match against an aggregated pool of bank quotes; raw spread + fixed commission per lot (typical $3–$7 per side per lot).
The true cost calculation
Headline spread is misleading. The real measure is spread + commission per round-turn lot:
- Market-maker account: 2.0 pip spread × $10 = $20 per lot, no commission.
- ECN account: 0.3 pip × $10 + $7 commission = $3 + $7 = $10 per lot.
The ECN account is half the cost on EUR/USD despite the "higher" commission line.
When spreads widen — and what to do
Spreads predictably widen during:
- NFP releases (first Friday of the month, 12:30 UTC)
- FOMC / ECB / BoE decisions
- Asian session close → before Sydney opens (22:00–00:00 UTC)
- Friday evening to Sunday evening
Place limit orders rather than market orders during these windows. Active traders typically pause trading 5 minutes before and after major data prints.
Frequently asked questions
What is a spread in forex?
The spread is the difference between the bid (sell) and ask (buy) price of a currency pair, measured in pips. It is the primary cost of forex trading. For example, if EUR/USD shows 1.08501 / 1.08515, the spread is 1.4 pips.
What is the difference between fixed and variable spreads?
Fixed spreads stay constant regardless of market conditions (typically wider, set by market makers). Variable spreads fluctuate with real market liquidity — tighter most of the day but widening during news and low-liquidity periods.
What is an ECN account?
An ECN (Electronic Communication Network) account routes orders directly to a liquidity pool of banks and hedge funds, showing raw interbank spreads (often 0.0–0.3 pip on EUR/USD) plus a fixed commission per lot. It is the most transparent retail execution model.
When are forex spreads tightest?
During the London / New York overlap (13:00–17:00 UTC). Spreads widen at session opens, around major economic releases (NFP, FOMC), at Asia close, and over weekends when the market is closed.
