What is a Spread in Forex?
The spread is the difference between the bid (sell) price and the ask (buy) price of a currency pair. For many retail accounts, the spread is a primary transaction cost (some accounts may also charge a commission).
Simple Example
If EUR/USD is quoted as 1.1050 / 1.1052:
- Bid Price: 1.1050 (price you can sell at)
- Ask Price: 1.1052 (price you can buy at)
- Spread: 1.1052 − 1.1050 = 2 pips
You begin a new trade “behind” by the spread: you buy at the ask, but an immediate sell would fill at the bid.
Spread Visualization (Interactive Example)
Use this illustrative example to see how spreads typically change with liquidity and volatility. Values are examples and will vary by broker, instrument, and market conditions.
This is not a real-time quote feed. It is a learning aid to build intuition about spread behavior.
Types of Spreads
Fixed spreads
Fixed spreads are quoted as constant values in normal conditions. They can feel easier to plan around, but execution quality may still vary during fast markets.
Fixed spread characteristics
- More predictable quoting: the spread value is easier to anticipate
- Beginner-friendly: simple to understand in early learning
- Important caveat: fast markets can still lead to slippage, re-quotes, or execution restrictions
Variable spreads
Variable spreads change based on liquidity and volatility. They may be tight during liquid periods, and wider during news or low-liquidity sessions.
Example behavior
Normal market: EUR/USD spread may be around 0.8–1.2 pips
High volatility window: EUR/USD spread may widen materially for brief periods
Lower liquidity session: spreads often widen compared to peak liquidity
Variable spreads can be lower than fixed spreads during normal conditions but less predictable during volatility.
Spread Widening During News and Low Liquidity
Spreads are usually tight when liquidity is strong. During high-impact news releases, weekends, and major holidays, liquidity can drop and spreads can widen. For short-term strategies, that widening can materially change expected costs and execution.
When spread widening matters most
If your strategy targets small moves (scalping / short-term), a wider spread can consume a significant portion of the expected profit. During fast markets, execution quality (slippage) can become just as important as the quoted spread.
Common situations that widen spreads
Major economic releases
Examples: CPI, employment reports, GDP
Spreads may widen before and after the release
Avoid new entries around the release if your strategy is spread-sensitive
Central bank decisions
Examples: FOMC, ECB, BOE, BOJ
Volatility + reduced liquidity often widen spreads
Highest execution risk for many pairs
Low-liquidity sessions
Certain hours can have lower liquidity for some pairs
Minors/exotics are typically more affected
Favor majors during lower liquidity if spreads matter to you
Weekends and holidays
Weekend open and major holidays can widen spreads
Liquidity providers may reduce exposure
Be cautious with new positions at market reopen
Weekend and holiday patterns (practical guide)
| Period | Typical effect | Why it happens | Practical action |
|---|---|---|---|
| Weekend reopen (first 1–2 hours) | Higher spreads / thinner liquidity | Re-pricing after market closure | Wait for normalization |
| Major public holidays | Wider spreads on some instruments | Key financial centers closed | Check schedule |
| Friday late hours | Spreads may widen gradually | Liquidity decreases into the weekend | Be selective |
Key Takeaways: Spread Widening
- Spreads tend to widen during high-impact news and low-liquidity periods
- Widening can begin before scheduled releases as liquidity thins
- Majors usually stay tighter than minors/exotics under stress
- Execution quality matters as much as the quoted spread in fast markets
How Spreads Affect Your Trading
The break-even point
Every trade starts with a spread cost. The market must move in your favor by at least the spread amount (in pips/points) to reach break-even, before any profit is realized.
Example calculation (illustrative):
- Spread: 2 pips on EUR/USD
- Trade size: 1 standard lot
- Pip value: $10 per pip (typical for 1 lot on many USD-quoted majors)
- Spread cost: 2 × $10 = $20
Pip value varies by instrument and account currency. Treat this example as a learning reference.
Major vs. Minor vs. Exotic Pairs
Spreads vary significantly between different types of currency pairs:
| Pair Type | Typical Spread | Examples | Trading Consideration |
|---|---|---|---|
| Major Pairs | 0.5 - 2 pips | EUR/USD, GBP/USD, USD/JPY | Lowest spreads, highest liquidity |
| Minor Pairs | 1 - 3 pips | EUR/GBP, AUD/CAD, NZD/JPY | Higher spreads, still reasonable liquidity |
| Exotic Pairs | 5 - 50+ pips | USD/TRY, EUR/TRY, USD/ZAR | High spreads, lower liquidity, higher execution risk |
Strategies for Different Spreads
Scalping
Preferred spread: < 1 pip
Why: Many small targets require minimal transaction costs
Day trading
Preferred spread: 1–2 pips
Why: Larger intraday moves can absorb the spread cost
Swing trading
Preferred spread: 2–3 pips may be acceptable
Why: Holding longer makes spread a smaller fraction of the move
How to Choose a Broker Based on Spreads
Broker comparison checklist
- Average spread during your trading hours (not just advertised minimums)
- Pricing model: spread-only vs. spread+commission
- Volatility behavior: how spreads behave during news windows
- Execution quality: slippage, re-quotes, and fill reliability
- Other costs: swaps, inactivity fees, deposit/withdrawal fees