Between the bid and ask, a gap:the spread's the cost before you tap.
The difference between the bid and ask price of a currency pair, measured in pips.
The spread represents the primary transaction cost in forex trading. Tighter spreads mean lower costs.
In plain words
Every quote has two prices: the ask, at which a trader can buy, and the bid, at which a trader can sell. The ask is the higher of the two, and the difference between them is the spread.
spread = ask − bid
See it move
Spread: the distance between Ask and Bid
Why it matters
The spread is a cost paid on every trade without appearing as a separate charge. A position is opened at one price and can only be closed at the other, so it starts with a small loss equal to the spread.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
EUR/USD is quoted with a bid of 1.1000 and an ask of 1.1002, and a trader buys one standard lot.
- 1Spread1.1002 − 1.1000 = 0.0002, which is 2 pips.
- 2Cost on one standard lot2 × 10 US dollars = 20 US dollars.
- 3The lot is bought at 1.1002 and could be sold at once only at 1.1000.
The trade opens showing a loss of 20 US dollars, and the bid must climb 2 pips to 1.1002 before it breaks even.
A common mistake
The spread is not the only cost of trading. Depending on the account there may also be commission and overnight swap, so a narrow spread with a commission can cost more or less than a wider spread without one.
Check yourself
Learn more
- Academy lessonUnderstanding currency pairsBase and quote currencies, bid and ask, the spread, and the difference between major, minor and exotic pairs.
- Academy lessonCrypto markets: custody, weekends and venuesHolding a coin against holding a contract on its price, why a market that never closes is thinner at weekends, and why one coin has different prices on different venues.
- ExplainerECN and standard accounts: two ways of paying for a tradeA standard account folds the cost of trading into the spread. An ECN account shows a raw spread and charges a commission. The difference is in how the cost is presented.
Educational information, not investment advice or a recommendation to trade.