What are Forex spreads?
Understand how to calculate Forex spreads, including the bid-ask spread
What is the spread?
The spread is the difference between the price at which you can buy and sell currency. If your broker quotes EUR/USD at 1.5602/05, this means that you can sell 1 EUR for 1.5602 USD or buy 1 EUR for 1.5605 USD. The spread is the difference between the buying and selling prices. In this example, the spread is 3 pips wide.
The spread matters because this is how most brokers earn a living. It's a cost that is ultimately borne by you, and one that you must recoup to trade profitably. To net a profit, prices must move in your favour by more than the spread. You could think of the spread as a hurdle you must overcome.
What is the bid-ask spread?
In the context of Forex trade:
- Bid: the price at which the market or your broker is ready to buy currency from you. It is 1.5602 in the example above.
- Ask: the price at which the market or your broker is ready to sell you a currency pair. It is 1.5605 in the example above.
Fixed vs. floating spreads
Spreads come in two flavours: fixed or floating (also known as variable spreads). Floating spreads tend to be lower during normal market conditions, however, they can widen dramatically when markets become volatile. In contrast, fixed spreads provide greater certainty of pricing, which may appeal if you are new to Forex trading or engage in automated trades. See our guide to fixed vs. floating spreads for more information.
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