Spread in trading: definition
Also called: bid · ask · offre · demande
The gap between the buy price (ask) and the sell price (bid). It is the immediate cost of every trade; it widens outside the main sessions, at the Sunday evening open and around major releases.
The gap between two prices
At any moment, a currency pair shows two prices: the bid, at which you can sell, and the ask, at which you can buy. The spread is the difference between the two. If EUR/USD is quoted 1.10500 / 1.10508, the spread is 0.8 pip.
A position opened and closed immediately therefore loses the spread. It is a trade's first cost, before any commission and the rollover swap.
Why it varies
The spread reflects liquidity. It is tightest on the most traded pairs, like EUR/USD, during the overlap of the London and New York sessions. It widens on exotic pairs, at night, and especially around 11 pm Paris time, at the rollover from one value date to the next.
It also widens sharply in the seconds around a major announcement such as NFP or a central bank decision, when liquidity providers pull their prices.
Its weight on a strategy
For a strategy targeting 10 pips per trade, a one-pip spread eats 10% of the target gain. For a strategy targeting 100, it becomes negligible. That's why the spread matters much more for scalping than for multi-day trading.
Frequently asked questions
- Fixed or variable spread?
- A fixed spread is predictable but usually wider on average. A variable spread is tighter most of the time, but can widen sharply at the worst moment.
- Is the spread the only cost of Forex trading?
- No: add the commission on raw-spread accounts, the rollover swap on positions held overnight, and slippage on execution.
This page explains a concept; it is not investment advice. Leveraged currency trading carries a high risk of losing capital.
