What Is Spread?

Spread is one of the most important trading costs to understand before choosing a broker or opening a trade. In simple terms, the spread is the difference between the buy price and the sell price of a financial instrument.

When you look at a trading platform, you will usually see two prices for an instrument. One is the price at which you can buy, and the other is the price at which you can sell. The difference between these two prices is called the spread.

Spreads are common in forex trading, CFD trading, commodities, indices, shares, cryptocurrencies and many other financial markets. Even if a broker advertises “zero commission,” the spread may still be part of the total cost of trading.

BrokerIntro provides this guide for educational purposes only. Nothing on this page should be considered financial advice, investment advice, trading advice or a recommendation to trade or use any specific broker.

Spread Meaning

In trading, spread means the difference between the bid price and the ask price.

The bid price is the price at which you can sell an instrument. The ask price is the price at which you can buy an instrument.

The spread is calculated like this:

  • Ask price minus bid price equals spread

For example, if EUR/USD has a bid price of 1.1000 and an ask price of 1.1002, the spread is 0.0002, or 2 pips.

This means the market would need to move in your favor by at least the spread amount before the trade begins to show a potential profit, not including any other fees or commissions.

Bid Price and Ask Price

To understand spreads, it is important to understand bid and ask prices.

The bid price is the price buyers are willing to pay, and it is usually the price you receive when selling.

The ask price is the price sellers are asking for, and it is usually the price you pay when buying.

Key terms:

  • Bid price: the price used when selling
  • Ask price: the price used when buying
  • Spread: the difference between bid and ask
  • Narrow spread: smaller trading cost
  • Wide spread: larger trading cost

A narrower spread usually means the cost of entering and exiting a trade is lower. A wider spread means the trade starts with a larger cost.

How Spread Works

When you open a trade, the spread is usually included immediately in the position. This is why many trades start slightly negative as soon as they are opened.

For example, if you buy an instrument at the ask price, you would usually close that position at the bid price. Because the bid price is lower than the ask price, the difference represents the spread.

A simple example:

  • Bid price: 1.2500
  • Ask price: 1.2503
  • Spread: 3 pips

If you open a buy position at 1.2503, the market must move above that level enough to cover the spread before the trade becomes profitable, excluding other costs.

Why Spread Matters

Spread matters because it directly affects trading costs. The more often you trade, the more important spreads become.

Spread is especially important for:

  • Forex traders
  • CFD traders
  • Day traders
  • Scalpers
  • High-frequency traders
  • Short-term traders
  • Traders using small price targets
  • Traders comparing broker fees

A trader who opens many positions may pay spread costs many times. Even small spreads can become significant over time.

Spread as a Trading Cost

Spread is one of the main ways brokers may earn money. Some brokers charge a separate commission, while others include their compensation inside the spread.

Common broker pricing models include:

  • Spread-only accounts
  • Commission-based accounts
  • Raw spread accounts
  • Standard accounts
  • ECN-style accounts
  • Zero commission accounts
  • Fixed spread accounts
  • Variable spread accounts

A spread-only account may have no separate commission, but the spread may be wider. A raw spread account may offer lower spreads but charge a commission per trade.

The best option depends on trading style, trade size, market choice and how often the trader places trades.

Fixed Spread vs Variable Spread

Brokers may offer fixed spreads or variable spreads.

A fixed spread is designed to stay the same under normal market conditions. A variable spread can change depending on market liquidity, volatility and trading conditions.

Fixed spreads may offer:

  • More predictable trading costs
  • Easier cost calculation
  • Simpler planning for beginners
  • Stable pricing in normal conditions

Variable spreads may offer:

  • Lower spreads during liquid market conditions
  • More realistic market-based pricing
  • Possible spread widening during volatility
  • Lower costs on some instruments during active sessions

Even fixed spreads may change during extreme market conditions, major news or low liquidity periods. Users should always check the broker’s official spread policy.

Tight Spread and Wide Spread

A tight spread means the difference between bid and ask is small. A wide spread means the difference is larger.

Tight spreads are often found in highly liquid markets, such as major forex pairs during active trading sessions.

Wide spreads may occur when:

  • Market liquidity is low
  • Volatility is high
  • Important news is released
  • Markets open or close
  • Exotic currency pairs are traded
  • Less popular instruments are traded
  • Weekend or holiday conditions affect pricing

A tight spread is generally better for trading costs, but traders should also consider commissions, execution, slippage and broker reliability.

Forex Spread

In forex trading, spread is usually measured in pips. A pip is a small price movement in a currency pair.

For example, if EUR/USD moves from 1.1000 to 1.1001, that is usually one pip.

Forex spreads can vary depending on:

  • Currency pair
  • Broker
  • Account type
  • Market session
  • Liquidity
  • Volatility
  • News events
  • Trading volume

Major currency pairs such as EUR/USD, GBP/USD and USD/JPY often have lower spreads than minor or exotic currency pairs. Exotic pairs usually have wider spreads because they are less liquid.

CFD Spread

In CFD trading, spread is also an important cost. CFD spreads may apply to instruments such as indices, commodities, shares, ETFs, metals, energies and cryptocurrencies.

CFD spreads may vary depending on:

  • Instrument type
  • Market liquidity
  • Broker pricing model
  • Trading session
  • Underlying market conditions
  • Volatility
  • Account type
  • Contract specifications

For example, an index CFD may have a different spread during regular market hours compared with out-of-hours trading. A cryptocurrency CFD may have wider spreads because crypto markets can be highly volatile.

Spread and Commission

Spread and commission are both trading costs, but they are not the same.

Spread is included in the difference between buy and sell prices. Commission is a separate fee charged by the broker for opening or closing a trade.

A broker may charge:

  • Spread only
  • Commission only, in rare cases
  • Spread plus commission
  • Raw spread plus commission
  • Wider spread with no commission

A low spread does not automatically mean a broker is cheaper. If the commission is high, the total cost may still be significant.

When comparing brokers, users should review the total trading cost, not only the advertised spread.

Spread Example

Imagine a trader wants to trade EUR/USD.

The platform shows:

  • Bid price: 1.1000
  • Ask price: 1.1002
  • Spread: 2 pips

If the trader opens a buy position, the position is opened at the ask price of 1.1002. If the trader immediately closes the position, it would usually close at the bid price of 1.1000. The difference is the spread cost.

This is why the market must move in the trader’s favor before the trade can become profitable.

What Affects Spread?

Spreads can change for many reasons. Traders should understand that spreads are not always the same throughout the day.

Factors that may affect spread include:

  • Market liquidity
  • Market volatility
  • Trading session
  • Economic news
  • Interest rate decisions
  • Political events
  • Broker pricing model
  • Instrument popularity
  • Market opening and closing times
  • Weekend or holiday periods
  • Account type
  • Execution model

Spreads often become wider during uncertain or fast-moving market conditions.

Spread During News Events

Spreads may widen during major news events because markets can become volatile and liquidity may decrease. This means trading costs can increase exactly when price movements are fastest.

News events that may affect spreads include:

  • Interest rate decisions
  • Inflation reports
  • Employment data
  • Central bank speeches
  • Company earnings
  • Political announcements
  • Geopolitical events
  • Unexpected market news

Traders should be cautious when trading during major announcements, especially when using leverage.

Spread and Liquidity

Liquidity refers to how easily an instrument can be bought or sold. Highly liquid markets usually have tighter spreads because there are many buyers and sellers.

Low liquidity can lead to wider spreads because there may be fewer market participants available at the current price.

High liquidity may result in:

  • Lower spreads
  • Faster execution
  • Smoother price movement
  • Lower trading costs

Low liquidity may result in:

  • Wider spreads
  • More slippage
  • Price gaps
  • Slower execution
  • Higher trading costs

This is why major forex pairs often have tighter spreads than exotic pairs or less popular instruments.

Spread and Slippage

Spread and slippage are different, but both affect trading costs.

Spread is the difference between bid and ask prices. Slippage happens when an order is executed at a different price than expected.

Both may increase trading costs, especially during fast markets.

Slippage may occur when:

  • Markets move quickly
  • Liquidity is low
  • Price gaps appear
  • Stop-loss orders are triggered
  • Major news is released
  • Large orders are placed

A broker may advertise low spreads, but users should also consider execution quality and slippage risk.

Low Spread Brokers

A low spread broker is a broker that offers relatively small differences between bid and ask prices. Low spreads may help reduce trading costs, especially for active traders.

However, users should not choose a broker based only on low spreads.

When comparing low spread brokers, users should also review:

  • Regulation
  • Legal entity information
  • Commission charges
  • Overnight fees
  • Execution quality
  • Slippage policy
  • Account type requirements
  • Minimum deposit
  • Trading platforms
  • Deposit and withdrawal fees
  • Customer support
  • Risk disclosures

A broker with very low spreads but unclear fees or weak regulation may still carry serious risks.

Raw Spread Accounts

Some brokers offer raw spread accounts. These accounts may show market-based spreads that can be very low, sometimes close to zero during liquid market conditions.

However, raw spread accounts usually charge a separate commission.

Raw spread accounts may be useful for:

  • Active traders
  • Scalpers
  • High-volume traders
  • Traders who compare exact trading costs
  • Users who understand commission-based pricing

Before choosing a raw spread account, users should calculate the total cost, including both spread and commission.

Spread and Scalping

Scalping is a trading style that aims to profit from very small price movements. Because each trade targets a small movement, spread is especially important.

For scalpers, a wide spread can make trading more difficult because the market must move further before the trade becomes profitable.

Scalpers should pay attention to:

  • Average spread
  • Commission per trade
  • Execution speed
  • Slippage
  • Broker scalping policy
  • Platform stability
  • Market liquidity
  • Trading session

Not all brokers allow scalping, so users should check broker terms before using this strategy.

Spread and Long-Term Trading

Spread may be less important for long-term traders than for scalpers or day traders, but it still matters. Long-term traders may place fewer trades, so spread costs may be less frequent.

However, long-term traders should also consider:

  • Overnight financing fees
  • Swap rates
  • Position holding costs
  • Market volatility
  • Broker account fees
  • Currency conversion fees

For longer-term positions, overnight costs may become more important than the spread.

How to Compare Broker Spreads

When comparing broker spreads, users should look beyond headline claims such as “from 0.0 pips” or “low spreads.”

Important spread comparison questions include:

  • Is the spread fixed or variable?
  • Is the advertised spread average or minimum?
  • Does the account charge commission?
  • Are spreads wider during news events?
  • Are spreads different by account type?
  • Are spreads different by instrument?
  • Are there overnight fees?
  • Are there withdrawal or inactivity fees?
  • Is execution reliable?
  • Is slippage clearly explained?

A minimum spread may only apply during ideal market conditions. Average spreads may give a more realistic view of trading costs.

Common Spread Mistakes

Many beginners underestimate spreads because they focus only on market direction. However, trading costs can affect results significantly.

Common spread mistakes include:

  • Choosing a broker only because of advertised low spreads
  • Ignoring commissions
  • Ignoring overnight fees
  • Trading during high-volatility news without checking spread widening
  • Not understanding bid and ask prices
  • Assuming spread is always fixed
  • Using large position sizes without calculating spread cost
  • Comparing brokers without checking account types
  • Ignoring slippage and execution risk
  • Trading exotic instruments without understanding wider spreads

Understanding spread can help traders make more informed broker comparisons.

Is a Lower Spread Always Better?

A lower spread is usually better for trading costs, but it is not the only factor. A broker with low spreads may charge higher commissions. Another broker may have slightly wider spreads but better platform stability, clearer regulation or better support.

A good broker comparison should consider:

  • Spread
  • Commission
  • Regulation
  • Execution
  • Platform quality
  • Slippage
  • Account terms
  • Withdrawal policy
  • Risk disclosures
  • Total cost of trading

The cheapest-looking broker is not always the best choice for every trader.

Spread and Risk Management

Spread is part of risk management because it affects the cost of entering and exiting trades. Traders should understand the spread before opening any position.

Spread risk management may include:

  • Checking the spread before placing a trade
  • Avoiding trading during extreme spread widening
  • Understanding account pricing
  • Comparing spread plus commission
  • Using position sizes that match account balance
  • Avoiding overtrading
  • Reviewing trading costs regularly
  • Understanding how spreads affect stop-loss and take-profit levels
  • Avoiding instruments with spreads too wide for the strategy

Responsible trading includes understanding costs before taking market risk.

Questions to Ask About Spread Before Choosing a Broker

Before choosing a broker, users should ask important spread-related questions.

Useful questions include:

  • What is the average spread?
  • What is the minimum spread?
  • Is the spread fixed or variable?
  • Does the broker charge commission?
  • How do spreads change during news?
  • Are spreads different by account type?
  • Are spreads different by instrument?
  • Are raw spread accounts available?
  • What is the total cost per trade?
  • Does the broker explain spreads clearly?
  • Are there other fees besides spread?
  • Is the broker regulated?

These questions can help users compare brokers more carefully.

BrokerIntro’s Approach to Spread Education

BrokerIntro explains spreads because they are one of the most important trading costs when comparing brokers. Many users focus on platforms, leverage or minimum deposits, but spreads can directly affect every trade.

Our goal is to help users understand:

  • What spread means
  • How bid and ask prices work
  • Why spread matters
  • How spreads affect trading costs
  • How fixed and variable spreads differ
  • Why low spread does not always mean low total cost
  • What questions to ask before choosing a broker

BrokerIntro does not provide financial advice or recommend any specific broker. Our content is educational and informational only.

Final Spread Risk Notice

Spread is an important trading cost. A lower spread may reduce trading expenses, but it does not remove trading risk. Market movements, leverage, margin, volatility, slippage, commissions and broker conditions can all affect trading results.

Before opening a trading account, always review the broker’s official fee schedule, spread information, account terms, risk disclosures and legal documents.

Nothing on BrokerIntro should be considered financial advice, investment advice, trading advice or a recommendation to trade or use any specific broker.