Forex spreads are the difference between the price you can buy a currency pair at and the price you can sell it at. That gap is the main cost of most trades, and it is paid the moment a position opens. Knowing how to read it, convert it into money and spot when it widens is one of the cheapest skills a new trader can learn.
What is a spread in forex?
Every forex quote has two prices. The bid is the price at which you can sell, and the ask (sometimes called the offer) is the price at which you can buy. The ask is always a little higher than the bid, and the distance between them is the spread.
For example, if EUR/USD is quoted at 1.10000 / 1.10003, you can sell at 1.10000 and buy at 1.10003. The difference is 0.00003, which is 0.3 pips. If you bought and immediately sold again, with no price movement at all, you would lose that 0.3 pips. That is why a fresh trade always starts slightly in the red.
The spread is not a fee added on top of your trade. It is built into the two prices you see, which is why it is easy to overlook. If the idea of a pip is new, the glossary has a short definition, and our guide to the forex market shows the pairs it applies to.
How to calculate the spread in pips
The calculation has two steps: subtract the bid from the ask, then express the result in pips.
- Take the ask price and subtract the bid price.
- Divide the result by the size of one pip for that pair.
For most pairs, one pip is the fourth decimal place, or 0.0001. Pairs quoted against the Japanese yen are the exception: one pip there is the second decimal place, or 0.01.
Here are two illustrative examples:
- EUR/USD at 1.10000 / 1.10012: the gap is 0.00012, divided by 0.0001 gives a spread of 1.2 pips.
- USD/JPY at 150.000 / 150.015: the gap is 0.015, divided by 0.01 gives a spread of 1.5 pips.
Most platforms, including MetaTrader 5, quote prices to five decimals (three for yen pairs). That fifth digit is a tenth of a pip, sometimes called a pipette, and it is what lets brokers show spreads such as 0.3 or 1.2 pips rather than whole numbers.
How to turn the spread into money
A spread in pips only becomes meaningful once you know what a pip is worth on your position. The value of a pip depends on the pair and on your trade size.
On a pair where the US dollar is the second currency, such as EUR/USD or GBP/USD, a rough guide is:
- 1 standard lot (100,000 units): about $10 per pip
- 1 mini lot (10,000 units): about $1 per pip
- 1 micro lot (1,000 units): about $0.10 per pip
So the cost of the spread is simply spread in pips × pip value × number of lots. A 1.2-pip spread on one standard lot of EUR/USD costs about $12. The same spread on a micro lot costs about 12 cents. The pip calculator does this sum for any pair and lot size, so you can check the cost before you place the order.
The spread is paid on every trade, win or lose. Ten trades a day at $12 each is $120 in costs before the market has moved in your favour once.
Why spreads change during the day
Most forex spreads are variable, which means they move with market conditions. Three things matter most.
Liquidity. When many buyers and sellers are active, prices are competitive and the spread is tight. The busiest hours are usually when the London and New York sessions overlap. Late in the US afternoon and around the daily rollover, fewer participants are trading and spreads tend to widen. Our market hours tool shows which sessions are open right now.
News. Around major data releases, such as interest rate decisions or US jobs figures, prices can jump in seconds. Liquidity providers widen their quotes to protect themselves, so spreads can be several times their normal size for a few minutes. The economic calendar lists these events in advance.
The pair itself. Major pairs like EUR/USD, USD/JPY and GBP/USD trade in enormous volume and usually have the tightest spreads. Minor and exotic pairs trade less and cost more to enter.
Fixed spreads, variable spreads and commission
Some accounts quote a spread that stays the same regardless of conditions, and others pass on the market's own variable spread. A variable spread is usually tighter most of the time but can widen sharply at the moments described above.
Brokers also differ in how they charge. Some include the whole cost in the spread with no commission. Others offer a narrower spread and charge a separate commission per lot traded. Neither model is automatically cheaper. A trader placing a few small trades a week may prefer one cost in the spread, while a trader placing many large trades may come out ahead with a tighter spread plus commission.
At DMA Capitals, for example, the Standard account has spreads from 0.3 pips with zero commission, while the Executive and Corporate accounts have spreads from 0.2 and 0.1 pips with a commission per lot instead. Whatever the account, the useful comparison is the total cost of a round trip: spread plus commission, at the size you actually trade.
How to keep spread costs under control
You cannot remove the spread, but you can stop it from quietly eating into your results.
- Trade the most liquid pairs while you are learning, where spreads are usually tightest.
- Avoid opening positions in the minutes before and after major news unless that is part of your plan.
- Be careful around the daily rollover, when spreads often widen.
- Check the live spread on your platform before you place an order, not after.
- Size positions so that costs stay small compared with the move you are aiming for. The risk calculator helps here.
Trading frequently multiplies the effect of the spread. A strategy that aims for very small moves needs tight spreads to make sense at all, while a strategy that holds positions for days is far less sensitive to a fraction of a pip.
Try it before you trade real money
The quickest way to get a feel for spreads is to watch them. Open a demo account, add a few major pairs to your watchlist and note the spread at different times of day, then again during a news release. You will see the pattern described above within a week, without risking any money.
This article is general education, not investment advice. CFDs are leveraged products and you can lose more than you expect; read our risk warning.