The spread is the difference between the buy price (Ask) and the sell price (Bid) of a trading instrument.
It represents the transaction cost every trader pays when opening a position, and it’s how brokers and liquidity providers earn their commission on each trade.
In simple terms, the spread is what separates the price at which you can buy from the price at which you can sell - it’s the small gap you start with before your trade moves into profit.
How does the Spread Work
When you open a trade, you always enter at the Ask price if you are buying, or at the Bid price if you are selling.
Because these two prices are slightly different, your position begins with a small unrealized loss equal to the spread.
Example:
If EUR/USD has a Bid price of 1.1000 and an Ask price of 1.1002, the spread is 2 pips.
When you open a buy trade, the market needs to move 2 pips in your favor before your position reaches breakeven.
Types of Spreads
There are generally two types of spreads:
Fixed Spread - stays the same regardless of market conditions.
Variable (Floating) Spread - changes depending on liquidity and volatility in the market.
At times of high volatility or low liquidity (such as during news releases or weekends), spreads may widen temporarily.
Why does the Spread Matter
The spread directly affects your trading costs and overall profitability.
Tighter spreads mean lower costs per trade, while wider spreads make it more difficult to reach your profit target.
Understanding spreads also helps you choose the right instruments and trading times - for example, spreads tend to be lowest during periods of high market activity.