Every forex quote actually shows two prices at once, and the gap between them is the spread — a cost built directly into every trade before price even needs to move. This FXM680 guide explains how bid, ask, and spread actually work.
Table of Contents
What Is The Bid-Ask Spread? An In-Depth Overview
The bid-ask spread is the difference between the highest price a buyer is willing to pay (the bid) and the lowest price a seller is willing to accept (the ask) for a currency pair. The bid is the price at which a trader can sell the pair, and the ask is the price at which a trader can buy it — the gap between these two numbers is the spread, and it functions as the broker’s built-in fee for facilitating the trade.
Why The Spread Matters for Traders
Because a new position opens at the ask price when buying and the bid price when selling, every trade starts slightly underwater by the width of the spread — price has to move in the trader’s favor by at least that amount just to reach breakeven. For strategies that trade frequently, such as scalping, the cumulative cost of the spread across many trades can meaningfully affect overall profitability, making spread size a genuinely important factor in choosing both a broker and a trading style.
Detailed Analysis of Reading A Quote
The Two-Number Format
A forex quote is displayed as two numbers, such as EUR/USD 1.0987/1.0990 — the first number is the bid, the second is the ask, and the spread is the difference between them.
Measuring The Spread In Pips
In the example above, the spread between 1.0987 and 1.0990 is 0.0003, or 3 pips — the standard unit forex traders use to express and compare spread size across different pairs and brokers.
Fixed Versus Variable Spreads
Some brokers offer fixed spreads that stay constant regardless of market conditions, while others offer variable spreads that widen or narrow based on real-time liquidity and volatility — each model carries its own trade-offs depending on trading style.
| Term | Meaning |
|---|---|
| Bid | Price at which a trader can sell the pair |
| Ask | Price at which a trader can buy the pair |
| Spread | The difference between ask and bid, the built-in cost of the trade |
A Worked Example
With EUR/USD quoted at 1.0987/1.0990, buying the pair opens the position at 1.0990 (the ask). For the trade to reach breakeven, price needs to rise to at least 1.0990 on the bid side — meaning the position starts 3 pips behind before any real price movement has even happened. On a major pair with a typically tight spread, this cost is small; on a wider-spread exotic pair, the same dynamic can represent a considerably larger built-in hurdle.
What Makes Spreads Widen Or Tighten
Major currency pairs generally carry very tight spreads due to their high trading volume and liquidity, while less-traded exotic pairs or individual stocks tend to carry noticeably wider ones. Spreads also tend to tighten during peak trading-session hours when liquidity is highest, and widen during quieter periods or around major news releases when liquidity providers pull back and uncertainty increases.
Common Pitfalls to Avoid
A common mistake is ignoring spread cost entirely when evaluating a high-frequency strategy like scalping, where the cumulative effect across many trades can be a meaningful drag on returns. Another is trading around major news releases without accounting for the fact that spreads often widen significantly during those windows, changing the effective cost of entry compared to calmer market conditions.
Frequently Asked Questions
Is a smaller spread always better? Generally yes for cost purposes, though execution quality and broker reliability matter too — the tightest advertised spread isn’t useful if it doesn’t reflect actual tradable conditions.
Do spreads change throughout the trading day? Yes, spreads typically tighten during high-liquidity session overlaps and widen during quieter hours or around major news events.
Is the spread the only cost of trading forex? No, some account types also charge a separate commission per trade in addition to the spread, particularly on ECN-style accounts.
Continue Your Forex Learning Journey with FXM680
The bid-ask spread connects closely to broker account structure. See Commission Vs Spread and ECN Broker Explained next.
Disclaimer: The content provided on this page is for informational and educational purposes only. Trading financial markets involves significant risk. Consult with a certified financial advisor before making any investment decisions.
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Understand Every Forex Trading Cost
The spread is one of several trading costs worth knowing. Explore the full FXM680 Forex Academy to learn them all.