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What is Spread?#
The spread is the difference between the buy price (ask) and the sell price (bid) of a currency pair. It is the primary way brokers earn revenue on standard accounts — and it represents your immediate cost every time you open a trade.
When you look at a quote like EUR/USD 1.1050/1.1052, the spread is 2 pips. You automatically start a trade 2 pips "in the red," meaning the market must move 2 pips in your favor before you break even.
Spread may seem like a small number, but it compounds significantly for active traders who place dozens of trades per week.
Bid and Ask Price#
Every forex quote has two prices:
| Price | Definition | Who Uses It |
|---|---|---|
| Bid | The price the broker buys from you (you sell at this price) | When you SELL a currency pair |
| Ask | The price the broker sells to you (you buy at this price) | When you BUY a currency pair |
Example:
- EUR/USD quote: 1.10500 / 1.10520
- Bid = 1.10500 (you sell at this)
- Ask = 1.10520 (you buy at this)
- Spread = 0.00020 = 2 pips
The broker buys low and sells high — the difference is their profit. You always buy at the higher Ask price and sell at the lower Bid price.
Fixed vs Variable Spread#
Brokers offer two main types of spreads:
Fixed Spread:
- Stays the same regardless of market conditions
- Example: EUR/USD always at 2 pips
- Predictable costs, good for planning
- Usually slightly wider during normal conditions
- Common on market maker (dealing desk) broker models
Variable (Floating) Spread:
- Changes based on market liquidity and volatility
- During calm markets: EUR/USD might be 0.1–0.5 pips
- During news events or low liquidity: can widen to 10–30+ pips
- XM uses variable spreads on Ultra Low accounts (avg. 0.6 pips on EUR/USD)
| Condition | Fixed Spread | Variable Spread |
|---|---|---|
| Normal market | 2 pips | 0.3–0.8 pips |
| Major news release | 2 pips | 5–20 pips |
| Weekend/low liquidity | 2 pips | 2–5 pips |
| Best for | Beginners, news traders | Scalpers, quiet markets |
How to Minimize Spread Costs#
Every pip you pay in spread is a direct cost. Here's how to reduce it:
1. Trade Major Pairs: EUR/USD, GBP/USD, USD/JPY consistently have the tightest spreads (0.1–1 pip). Exotic pairs like USD/TRY or USD/ZAR can have spreads of 20–50 pips.
2. Trade During High Liquidity Hours: The London–New York overlap (13:00–17:00 GMT) has the highest trading volume and tightest spreads. Avoid trading during the Asian session for major USD pairs.
3. Choose the Right Account Type: ECN or Raw Spread accounts offer near-zero spreads but charge a fixed commission per lot. For traders executing many trades, this is usually cheaper overall.
4. Avoid Trading Around Major News: Spreads spike around events. Either close positions before news or wait for spreads to normalize.
5. Compare Brokers: Spread differences between brokers add up. On EUR/USD, the difference between a 1-pip and 0.2-pip spread is $8 per standard lot — meaningful for active traders.
Understanding spread empowers you to calculate your true trading costs and choose the best market conditions to maximize your edge.