Spread in Forex is the difference between the bid price and the ask price. The Spread cost
measured in 'pips' and is the cost of trading. Popular currency pairs such as the EUR/GBP
USD/AUD have lower spreads as a result of higher levels of liquidity. An in-depth
can be found in our Beginner's Guide To Forex Trading.
Spread in Forex is the difference between the two prices of a currency pair. The Bid is the
quote price at which a trader is willing to buy an asset, and the Ask level is the quote
at which a trader is willing to sell an asset. Organised by way of a two-way quote, signify
willing buyers and ask prices determine willing sellers. This concept is fundamental for
to comprehend as they are the primary cost of trading forex and currency pairs.
For instance, if the bid/ask rate for the EUR/USD is 1.1251/1.1252. Here, EUR is the base
currency and USD is the quote currency. This means that you can buy the EUR at a higher ask
price of 1.1252 and sell it lower at the bid of 1.1251.
The difference between ask and bid price in forex is known as the spread. In the above
the spread in pips would be (1.1252-1.1251) = 0.0001. The pip value on USD-based pairs is
identified on the 4th digit, after the decimal. This means that the final forex spread is
To calculate the total spread cost, multiply this pip value by the total number of lots
So, if you are trading a EUR/USD trading lot of 10,000. In case you are trading a standard
(100,000 units of the currency). Now, if your account is denominated in another currency,
GBP, you will need to convert that from US Dollars.
Given the bid and ask prices traders can engage with the market immediately or on the spot.
ask price is slightly higher than the underlying market price, whereas the bid price is
below the underlying market price. Traders sell the bid and buy the ask. A narrower bid-ask
spread translated to lower trading costs.
The size of the spread plays a pivotal part in forex trading. This is particularly the case
those using trading strategies that conduct a large number of transactions in a single
session. Trading volume, liquidity, market volatility, news, and time can all have an impact
The spread affects profit, given that a currency pair reveals information about market
conditions such as time, volatility and liquidity. For instance, emerging currency pairs
greater spread than major currency pairs. Currency pairs involving major currencies have
Traders should also consider peak trading times for particular currencies. For instance, the
cost of trading the Australian Dollar (AUD) will be higher during nighttime in Australia.
is because there are not as many market participants actively trading at this time.
other Australian financial markets that may influence forex are also closed at this time. A
wider currency pair spread means that a trader would pay more when buying and receive less
High spread usually occurs during periods of low liquidity or high market volatility. For
instance, forex pairs that include the Canadian dollar (CAD) will have lower liquidity
overnight hours in Canada. The same applies to exotic currency pairs such as the NZD/MXN
have a significantly lower trading volume.
Low spread in forex is the difference between the bid and the ask price. Traders prefer to
their traders when spreads are low like during the major forex sessions. Spreads are likely
be low when volatility is low and liquidity is high. When there is a bigger difference
the bid price (buy) and the ask price (sell), it means that traders are likely to spend more
wider spreads because of high volatility and lower market liquidity.