Every forex quote shows two prices, and the gap between them is called the spread. It is one of the most visible costs of trading, yet it is easy to misread or to treat as the whole cost. This guide has forex spreads explained in plain terms: what a spread is, how to read it, why it can change, and how to compare it fairly between accounts.
This article is educational information, not financial, investment or legal advice. It draws on official and provider documentation rather than personal trading results. No broker or strategy is endorsed. Disclosure: forexbrokers.net may earn a commission if you open an account through some links on this site; that does not change what we explain here. Forex trading can cause substantial losses.
What a spread is
OANDA’s bid-and-ask help page explains that the bid is the price at which you can sell and the ask is the price at which you can buy. The difference between the two is the spread.
Britannica Money’s introduction to retail forex describes crossing the spread as an indirect cost of entering the market. Because you buy at the higher price and sell at the lower one, a new position starts with a small disadvantage equal to the spread.
Spreads are usually quoted in pips
Providers often express the spread in pips rather than in money. To turn a spread into an amount, you need the position size and, where relevant, a currency conversion into your account currency. Our guide on how to calculate position size in forex covers the pip-value step.
Forex spreads explained: how to read one
To read a spread, look at both prices for the same pair at the same moment. Find the pip decimal for that pair in the instrument specification, then count the distance between bid and ask from that decimal. If the platform shows an extra fractional digit, treat it as part of a pip rather than a full pip.
Many platforms also display the spread directly next to the quote. Even so, it is worth checking the figure yourself once or twice, so you understand what the platform is showing and in which unit.
Typical versus live spreads
Providers sometimes publish typical, average or minimum spreads. These are summaries, not promises. The spread you actually pay is the one in effect when your order is executed. When comparing providers, note which kind of figure each one publishes and the period it covers.
Why spreads change
Spreads are not always fixed. Conditions such as how actively a pair is trading, the time of day, holidays and major news can all affect the prices providers quote. A spread that looks narrow at one moment may be wider at another.
Some accounts advertise fixed spreads and others variable ones. Read the account terms to see exactly what each label means for that provider, including any conditions under which a fixed spread can change.
The dealer sets the quote
The CFTC’s advisory on eight things to know before trading forex explains that a dealer controls its trading platform, including the prices you see. It suggests comparing prices with third-party sources. That habit helps you notice when a spread looks unusual.
Watch spreads in your own records
If you note the spread at the moment you enter each trade, your journal gradually shows how the figure varied across the times you actually traded. That is a description of your own experience with one provider, not a rule about the market. Still, it gives you concrete examples to discuss if a spread ever looks out of line with the account terms.
The spread is not the whole cost
A spread figure alone does not establish the total cost of a trade. Depending on the account, there may also be commissions, financing charges for positions held overnight, currency conversion charges and other fees. Some accounts combine a narrower spread with a separate commission, while others build the provider’s charge into the spread.
To compare accounts fairly, add every applicable charge for the same pair, the same position size and the same holding period. Our fees and accounts guides explain how to build that comparison.
A simple cost record
For each account you are considering, note the pair, the spread figure and its type, any commission, any financing charge and any conversion charge. Add the date you checked, because published figures can change. A record you built yourself is easier to trust than a headline figure on a marketing page.
Questions to ask a provider about spreads
Clear written answers make comparison easier. Useful questions include: Is the spread on this account fixed or variable, and under what conditions can it change? Are published figures typical, average or minimum, and over what period? Is there a separate commission, and how is it calculated? Where can I see the spread and charges for each trade I place? Keep the answers with your cost record so you can check them later against your statements.
How the spread affects a trade plan
The spread affects where your entry actually sits, and therefore the distances to your stop and target. A stop placed very close to entry can be reached simply because of the spread. Our guides to stop loss placement in forex and the risk reward ratio in forex explain how to allow for it.
The spread also matters more the more often you trade. Each new position crosses the spread again. Reviewing total spread costs in your trading journal shows how much of your results they account for over time.
A spread checklist
- Read both bid and ask, using the provider’s labels.
- Count the spread from the pip decimal in the specification.
- Check whether the account uses fixed or variable spreads, and what that means.
- Note whether published figures are typical, average or minimum.
- List any commission, financing and conversion charges.
- Compare total cost for the same pair, size and holding period.
- Compare quotes with an independent source if anything looks unusual.
Common spread misunderstandings
- Treating the spread as the full cost. Add commissions and other charges.
- Comparing different kinds of figures. Typical and minimum spreads are not the same.
- Assuming fixed means never changes. Read the account terms.
- Counting fractional pips as full pips. Count from the pip decimal.
- Ignoring the spread in stop placement. Allow for bid and ask.
Before you compare spreads
Cost comparisons only matter between legitimate providers. In the US, the NFA’s BASIC database holds registration information for retail forex firms. Our broker safety guides explain how to match a provider to an official record before you look at pricing.
FAQ
What is a spread in forex?
It is the difference between the bid and ask prices. OANDA explains that you sell at the bid and buy at the ask.
Is a lower spread always cheaper?
Not necessarily. Some accounts add a commission or other charges, so compare total cost.
Why did the spread widen?
Spreads can change with market conditions and the provider’s terms. Check the account documentation for details.
Risk warning: Forex and CFD trading uses leverage and can result in substantial losses. Past performance does not indicate future results. Nothing here is a recommendation to buy or sell any currency. If the implications are unclear, seek independent qualified advice.
