The short answer
The spread is the difference between the price you can sell at (the bid) and the price you can buy at (the ask). It is a real cost: the moment you open a trade you are down by the spread, because you buy at the higher ask and could only sell back at the lower bid. On EUR/USD the spread is often a fraction of a pip; on exotics it can be many pips. Trading liquid majors during active hours is how you keep this cost small.
Bid and ask
Every pair has two prices. The bid is what a buyer in the market will pay you — the price you sell at. The ask (or offer) is what a seller wants — the price you buy at. The ask is always the higher of the two.
So you always buy high (ask) and sell low (bid) relative to the mid-price. That built-in gap is not a glitch; it is how the market and your broker are compensated for providing liquidity.
What is the spread?
The spread is simply ask minus bid. If EUR/USD shows 1.08404 / 1.08414, the spread is 1.0 pip. Quoted in pips, it is the most direct measure of what a trade costs to enter.
Because you enter at the ask, a new long position starts life showing a small loss equal to the spread. Price has to move in your favour by at least the spread before you are breakeven.
Why the spread is a cost
The spread is the most-overlooked trading cost because it is invisible — there is no separate charge, it is baked into the price. But it is real money: spread cost = spread in pips × pip value × lots.
One standard lot of EUR/USD at a 1-pip spread costs about $10 to enter. Scalpers who take many trades a day feel this most; a wide spread can erase the edge of an otherwise good strategy. Costs are part of expectancy, not an afterthought.
Variable vs fixed spreads
Most brokers offer variable spreads that widen and narrow with market conditions, and some offer fixed spreads that stay constant. Variable spreads are usually tighter in normal conditions but blow out during news and thin liquidity; fixed spreads trade a slightly higher average for predictability.
Some account types instead charge a raw near-zero spread plus a separate commission. Compare the all-in cost — spread plus commission — not the headline spread alone.
What widens the spread
Spreads are a liquidity gauge. They tighten when many participants are trading and widen when few are:
- Session: tightest during the London and London/New York overlap; wider in the quiet hours. See market hours.
- News: around high-impact releases, spreads can widen sharply for seconds to minutes.
- Instrument: majors are tight, exotics are wide, because liquidity differs.
How to reduce spread cost
You cannot eliminate the spread, but you can avoid paying more than you need to. Trade liquid majors, during active sessions, and avoid trading straight into high-impact news unless that is your explicit plan.
Favour setups with wider targets, where a 1-pip spread is trivial against a 60-pip move, over hyperactive scalping where the spread is a large share of each trade. Keeping cost low is not glamorous, but it is free edge.
Frequently Asked Questions
What is the spread in forex in simple terms?
It is the gap between the sell price (bid) and the buy price (ask). You buy at the higher ask and can only sell back at the lower bid, so the spread is the cost of entering a trade.
What is the difference between the bid and ask price?
The bid is the price you sell at; the ask is the price you buy at. The ask is always higher, and the difference between them is the spread.
Is the spread a fee?
Effectively yes. There is no separate charge, but because you enter at the ask and exit at the bid, the spread is a built-in cost equal to the spread in pips times your pip value times your lot size.
Why do spreads widen?
Spreads widen when liquidity falls — during quiet hours, around high-impact news, and on less-traded pairs like exotics. They are tightest on majors during the London and New York sessions.
What is a good spread in forex?
On EUR/USD, a spread under about 1 pip is normal and competitive; raw-spread accounts can be a fraction of a pip plus commission. Always compare the all-in cost of spread plus any commission.