Every time you open a forex trade, you pay the spread. It is not listed as a separate charge — it is built into the price difference between where you can buy and where you can sell at any given moment. On a single trade it seems trivial — a fraction of a pip. Over hundreds of trades, spread costs are one of the largest expenses in a retail trader's P&L. Understanding exactly what you are paying and when is not optional for anyone serious about long-term profitability.
What Is the Spread?
The spread is the difference between the bid price (the price you sell at) and the ask price (the price you buy at). When you open a long trade, you buy at the ask. When you open a short trade, you sell at the bid. The spread is the gap between these two prices and represents an immediate cost the moment you enter any trade.
EUR/USD: Bid 1.08490 / Ask 1.08500 Spread: 1.0 pip ($10 per standard lot) You buy 1 lot at Ask: 1.08500 Immediately after opening, if you closed the trade: You sell at Bid: 1.08490 Loss: 1 pip = $10 The market must move 1 pip in your favour just to break even. The spread is the cost of entry on every trade.
Fixed vs Variable Spreads
Fixed spreads remain constant regardless of market conditions. They are typically offered by market maker brokers who set their own prices rather than streaming from liquidity providers. Fixed spreads provide predictability — you always know your entry cost. However, fixed spreads are often wider than variable spreads during normal market hours.
Variable spreads fluctuate with market conditions. During the London/New York overlap when liquidity is highest, variable spreads on EUR/USD can tighten to 0.1 to 0.3 pips. During the Asian session or before major news announcements, they can widen to 2 to 5 pips or more. ECN and STP brokers typically offer variable spreads plus a commission.
The Real Cost of the Spread
Spread cost is often underestimated because it is not displayed as a separate line item. It is implicit — embedded in the price you pay to enter.
EUR/USD, 0.10 lots (mini lot) Spread: 1.0 pip = $1.00 per trade 50 trades per month: $50 in spread 600 trades per year: $600 in spread EUR/USD, 1.00 lot (standard lot) Spread: 1.0 pip = $10.00 per trade 50 trades per month: $500 in spread 600 trades per year: $6,000 in spread
These numbers explain why professional traders are obsessive about choosing brokers with tight spreads — and why short-term scalping strategies that open and close dozens of trades per day face a significant structural hurdle from spread costs alone.
How Spreads Affect Strategy
Your trade needs to move at least the spread distance in your favour before you are at breakeven. For a 1-pip spread strategy targeting 5 pips of profit, 20% of your gross gain is consumed by the spread before you close. For a strategy targeting 50 pips with a 1-pip spread, the spread represents 2% of the gross gain — far more manageable.
All else being equal, strategies that target larger pip moves per trade are less affected by spread costs than strategies that target small moves. This is one reason why scalping is harder than it looks and why swing trading is more forgiving for beginners.
When Spreads Widen
Variable spreads widen significantly in four conditions: during major economic data releases (especially NFP, CPI, rate decisions), during market opening hours when the transition between sessions creates brief liquidity gaps, over weekends when the market is closed and reopens with a gap, and during extreme market events such as flash crashes or geopolitical crises.
Widened spreads during news events are particularly dangerous because they combine with fast price movement — your stop loss may execute significantly beyond your intended price, a phenomenon called slippage. Many experienced traders close positions or avoid new entries in the 15 minutes before high-impact news releases for exactly this reason.