Bid-Ask Spread Explained
⚡ Read this before you open your next trade
The bid-ask spread is the most fundamental cost of trading in the Forex market. Every time you open a trade, you start at a small loss equal to the spread. While individual spread costs may seem negligible, they compound significantly over hundreds of trades. Understanding what drives spread width and how to choose low-spread conditions can meaningfully improve your overall trading profitability.
What Is the Bid-Ask Spread?
The bid price is what buyers are willing to pay for a currency, and the ask price is what sellers want to receive. The spread is the gap between these two prices. For example, if EUR/USD shows a bid of 1.0850 and an ask of 1.0852, the spread is 2 pips. This spread is how brokers earn revenue on zero-commission accounts. When you buy a pair, you enter at the ask price; when you sell, you exit at the bid price — meaning you need the market to move at least the spread amount in your favor just to break even.
Factors That Influence Spread Width
Several factors determine how wide or tight a spread is. Liquidity is the primary driver — major pairs like EUR/USD have the tightest spreads (often under 1 pip), while exotic pairs like USD/TRY can have spreads of 10+ pips. Market volatility widens spreads, especially during major news releases. Time of day matters too — spreads are tightest during the London-New York overlap and widest during the Asian session for non-Asian pairs. Your broker type also affects spreads: ECN brokers typically offer raw spreads plus commission, while market makers embed their profit in wider spreads.
How to Minimize Spread Costs
Trade during peak liquidity hours when spreads are tightest, particularly during the London-New York overlap (1 PM–5 PM UTC). Focus on major pairs with naturally tight spreads rather than exotics. Avoid trading immediately before or during major news releases when spreads spike dramatically. Consider using an ECN broker if you trade frequently, as raw spreads plus low commissions can be cheaper than inflated market-maker spreads. For longer-term trades, spread costs matter less since profit targets are larger relative to the spread.
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Frequently Asked Questions
What is considered a good spread in Forex?
For major pairs like EUR/USD, a good spread is typically 0.1–1.0 pips. Minor pairs usually range from 1–3 pips, and exotic pairs can have spreads of 5–20+ pips. The best spreads are found during high-liquidity periods with ECN brokers offering raw pricing.
Do spreads widen during news events?
Yes, spreads typically widen significantly during major economic releases like Non-Farm Payrolls, interest rate decisions, and GDP reports. This happens because liquidity providers withdraw from the market due to increased uncertainty. Spreads usually return to normal within minutes after the initial reaction.
Is zero spread trading really free?
No, zero-spread accounts are not truly free. Brokers offering zero spreads charge a commission per trade instead. When you add the commission to the effective spread, the total cost is often comparable to standard spread accounts. Always calculate the all-in cost before choosing an account type.
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Creator of Take Profit Trader's App. Specializes in XAUUSD and ETHUSD, combining macro analysis with options data. He teaches not how to trade, but how to think in the market. Actively trading since 2020.
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