Spread (Forex)

The difference between the bid price (what dealers pay to buy) and the ask price (what dealers charge to sell) — the primary transaction cost in forex.

In forex, you'll always see two prices: the bid (the price the broker buys the base currency from you) and the ask (the price the broker sells it to you). The spread is the difference, measured in pips. If EUR/USD is quoted 1.10500/1.10520, the spread is 2 pips. You always buy at the higher ask and sell at the lower bid — the spread is the built-in cost you pay on every round trip.

Spreads vary by pair and market conditions. The most liquid pairs (EUR/USD, USD/JPY, GBP/USD) typically have the tightest spreads — often under 1 pip with ECN brokers. Less liquid or exotic pairs can carry spreads of 10, 20, or 100+ pips. Spreads widen sharply around major news events (non-farm payrolls, FOMC decisions) and during thin liquidity windows like the late New York–early Tokyo transition.

For active traders, the spread is the "toll" on every trade. A strategy targeting 5 pips of profit on a 3-pip-spread pair gives up 60% of gross edge to transaction cost before the position even moves. Comparing the all-in cost of trading across brokers and pairs — including any per-lot commissions on ECN accounts — is essential to evaluating whether a strategy is actually profitable in live conditions.

This definition is for informational and educational purposes only. Nothing on Finance Compass constitutes financial, investment, or trading advice. Always conduct your own research and consult a qualified professional before making financial decisions.