What Is a Spread in Forex? How Spreads Work and What They Cost

What is spread in forex?

A broker shows two prices for every currency pair:

	Price	You use it to…
Bid	1.0850	sell
Ask	1.0851	buy

The spread here is 1.0851 − 1.0850 = 0.0001, or 1 pip. Because you buy at the ask and would close at the bid, a new position shows a loss equal to the spread as soon as it opens; on accounts that also charge a commission, the starting loss is larger. The spread is not deducted as a separate fee — it is built into the prices. Learn more about the two prices in bid and ask price.

How is forex spread calculated?

spread cost = spread in pips × pip value per lot × lots

Worked example

EUR/USD spread 1.2 pips, 2 standard lots, USD account (pip value about $10 per standard lot):

1.2 × $10 × 2 = $24, reflected in the position’s P/L as soon as it opens.

For a short-term trader making many trades, these costs add up quickly: 20 trades like this cost $480 in spread costs alone, before any commission or slippage.

Fixed vs variable spreads

• Variable (floating) spreads move with market conditions. They are often lower in normal conditions but can widen sharply.
• Fixed spreads are designed to stay the same in normal market conditions, typically at a higher average level than variable spreads. Depending on the broker’s terms, they may still widen, or orders may be requoted, in fast or illiquid markets.

Spread vs commission

Some accounts have wider spreads and no commission; others — often called raw-spread or commission-based accounts — have tighter spreads plus a commission per lot. To compare them fairly, put both costs on the same basis: the total cost of one round trip (opening and closing one position). The spread is paid once per round trip, because you enter at one side of the quote and exit at the other; commissions are often quoted per side, so check whether a quoted commission covers the open only or the full round trip.

Comparing two accounts for 1 lot of EUR/USD (USD account, pip value about $10)

• Account A: 1.2-pip spread, no commission → round-trip cost $12
• Account B: 0.2-pip spread + $7 commission per round-trip lot ($3.50 per side) → $2 + $7 = $9 round trip

Why do forex spreads widen?

Spreads depend on how easily a pair can be traded, how volatile it is, the prices the broker receives from its liquidity providers and any markup the broker adds. They can widen:

• around major economic releases and central bank decisions,
• around the daily rollover, and sometimes when the main trading sessions hand over,
• when the forex market reopens after the weekend, and
• on minor and exotic pairs, which trade less.

Check live session times on our forex market hours page — spreads on major pairs tend to be tightest during the London and New York sessions.

Spread vs slippage

The spread is the gap between the bid and ask at the moment you trade, and you can see it before placing an order. Slippage is the difference between the price you expected and the price at which an order is actually filled; it happens when prices move before execution, and it can be negative or positive.