Financial Analyst/ Guest author, RADEX MARKETS
Lee W. is a seasoned professional trader with over 10 years of experience. Passionate about sharing valuable expertise and unique market insights, Lee W. now serves as an external and independent market analyst for RADEX MARKETS.
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In forex trading, the spread is one of the most important concepts a trader must understand, because it represents the basic cost of opening every position. The spread in trading refers to the difference between the bid price and the ask price of a currency pair, and this cost directly affects profitability across all trading strategies. In simple terms, the spread is how brokers structure pricing, how liquidity is reflected in the market, and how trading conditions shift throughout the day.
Understanding the spread matters because it influences trade execution, affects short-term trading performance, and determines how much the market must move before a position turns profitable. The core principle is that tighter spreads generally reduce trading costs, while wider spreads increase them-especially during volatile or low-liquidity conditions.
This article will explain the principles behind forex spreads, how they are calculated, why they fluctuate, and the factors that influence them. By the end, traders will understand how spreads work in practice and how to make better trading decisions as a result.
The spread in forex is the difference between the bid price and the ask price of a currency pair. In forex trading, the term “spread” refers to the basic cost you pay to open a position, and it represents the gap between what buyers are willing to pay (bid) and what sellers are willing to accept (ask). The bid/ask spread is one of the most important pricing elements in the forex market because it determines how much the market must move before a trade becomes profitable.
Pips are the standard unit used to measure spreads in forex. To put it simply, the spread expressed in pips is calculated as ask – bid, and this value determines the trading cost for entering or exiting a position. The key reason spreads fluctuate is that market liquidity and volatility constantly change, affecting how tightly prices can be quoted by brokers and liquidity providers.
Key points:
As a result, understanding the spread gives traders a clearer picture of transaction costs and how price movements affect trade outcomes.
In forex trading, calculating the spread means finding the pip difference between the bid price and the ask price. The core principle is simple: the spread shows the trading cost, and it is obtained by subtracting the bid from the ask. In practice, traders use this calculation to understand whether a spread is low, medium, or high, which directly affects trade profitability.
Formula:Spread = Ask Price – Bid Price
Example:If EUR/USD is quoted at 1.0850 (bid) and 1.0852 (ask), then:1.0852 – 1.0850 = 0.0002 = 2 pipsThis means the spread on EUR/USD is 2 pips.
In simple terms, pips are the unit used to measure the spread. A low spread often appears in highly liquid currency pairs, while a higher spread usually occurs in volatile or low-liquidity conditions. For example, major pairs like EUR/USD typically have lower spreads, while exotic pairs see much wider spreads.
Spread Level |
Pip Value |
Meaning |
|---|---|---|
| Low Spread | 1–2 pips | Indicates high liquidity and lower trading costs. |
| Medium Spread | 3–5 pips | Market is moderately liquid; trading costs are average. |
| High Spread | 6+ pips | Conditions are volatile or liquidity is low, increasing trading costs. |
Spread Level |
Typical Pip Range |
Market Conditions |
Common Currency Pairs |
Trading Impact |
|---|---|---|---|---|
| Low Spread | 1–2 pips | High liquidity, stable sessions | EUR/USD, GBP/USD, USD/JPY | Lower costs, ideal for active traders |
| Medium Spread | 3–5 pips | Moderate liquidity or mild volatility | Minor pairs (e.g., EUR/GBP, AUD/JPY) | Acceptable costs, manageable for most strategies |
| High Spread | 6+ pips | Low liquidity or high volatility | Exotic pairs (e.g., USD/TRY, USD/ZAR) | Higher costs, harder for short-term strategies |
A clear understanding of spread calculation helps traders evaluate trade timing, cost efficiency, and overall market conditions. This is why accurate calculation is an essential part of forex trading.
A forex spread quote shows the bid price and ask price of a currency pair, and the spread is the numerical difference between them, measured in pips. In forex trading, this structure matters because the bid–ask spread represents the actual cost a trader pays when opening or closing a position.
Understanding how these prices appear in a quote helps traders interpret market conditions and evaluate execution quality.
Most forex brokers present bid and ask prices in a dual-quote format or in a simple pricing table.
Below is an example of a typical quote:
Bid |
Ask |
|---|---|
| 1.1200 | 1.1250 |
| Sell | Buy |
What the Bid and Ask Mean
Examples of Real Spread Quotes
Here’s how it works:
Spreads also change depending on market conditions.
As a result, understanding spread quotes helps traders assess market quality, choose the right trading times, and manage transaction costs more effectively.
In forex trading, the type of spread you see on a trading platform depends on how the broker generates revenue and how prices are sourced. In simple terms, spreads can be fixed, variable, ultra-low variable, or raw, and each type reflects a different pricing model and trading environment. Understanding these spread types helps traders choose the account structure that best fits their strategy.
Most brokers operate under three main models-Market Maker, STP, and ECN-and each model offers different spread conditions. Market Makers typically provide fixed spreads, while STP and ECN brokers offer floating or raw spreads that adjust with real-time market liquidity and volatility.
Broker Model Comparison Table
Broker Model |
Spread Type Provided |
Feature |
|---|---|---|
| Market Maker | Fixed Spread | Predictable, controlled pricing set internally. |
| STP | Floating Spread | Prices come directly from liquidity providers; spreads fluctuate. |
| ECN | Raw / Ultra-Low Variable Spread | Tightest spreads from LPs, commission charged separately. |
Four Main Types of Forex Spreads
Fixed spreads are spreads that remain constant under most market conditions. The broker keeps the bid–ask difference unchanged, allowing traders to know their costs in advance.
Variable (floating) spreads change continuously based on liquidity and volatility. They may be very tight during active sessions but widen during news events or quiet periods.
Ultra-low spreads are a type of floating spread found mainly in ECN accounts, where quotes from multiple liquidity providers compress spreads to near-zero levels. A commission fee is charged instead.
Raw spreads are sourced directly from liquidity providers without broker markup. These spreads can be as low as 0.0 pip, with commissions applied separately.
Each spread type works differently in practice, and understanding these differences helps traders choose the most suitable account for their trading style.
Fixed spreads in forex are spreads that remain constant under most market conditions, meaning the bid–ask difference does not change even when market volatility increases. In simple terms, fixed spreads offer stable pricing because the broker sets the spread internally rather than sourcing it directly from external liquidity providers. Having stability allows traders to know their transaction costs in advance, which is why fixed spreads are often preferred by beginners.
Fixed spreads are typically offered by Market Maker brokers. Because they control their own pricing, they can keep spreads stable during normal conditions. However, during extreme volatility-such as FOMC meetings, CPI reports, or Non-Farm Payroll releases-fixed-spread brokers may temporarily widen their spreads or pause quoting to manage risk.
Variable spreads in forex are spreads that change continuously based on market conditions. In simple terms, a floating spread widens or narrows depending on liquidity and volatility, meaning the bid–ask difference is never fixed. This type of spread reflects real-time market pricing and can fluctuate significantly during different trading sessions or major economic events.
Floating spreads are primarily offered by STP and ECN brokers because their prices come directly from liquidity providers. During high-liquidity periods-for example, EUR/USD in the London session-the spread may fall to 0.1–0.5 pips. However, during major news releases or periods of market stress, the spread can widen sharply to 5–10 pips or more.
Floating spreads are influenced by:
While floating spreads may reduce costs when liquidity is strong, they are not always cheaper. During low-liquidity hours or volatile conditions, they can widen dramatically, making trading more expensive and less predictable.
Ultra–low variable spreads are a specific type of floating spread characterized by extremely tight pricing-often between 0.0 and 0.3 pips during high-liquidity periods.
In forex trading, the term “ultra–low variable spreads” refers to spreads delivered directly from multiple liquidity providers without any broker markup added. These spreads are typically available on ECN accounts, where brokers charge a separate commission instead of widening the spread.
The key reason ultra–low spreads can exist is the deep liquidity aggregated from banks, prime brokers, and institutional liquidity pools. Because multiple liquidity providers compete to offer the best bid and ask prices, the bid–ask difference can shrink to near-zero in highly active sessions. However, spreads still fluctuate; they may widen to 5–10 pips during volatile conditions or major economic announcements.
Ultra–low variable spreads are especially suitable for:
This type of spread provides traders with access to the most competitive pricing available in retail forex trading.
Raw spreads in forex are the pure, unmarked bid and ask prices streamed directly from liquidity providers. In simple terms, “raw spreads” refer to pricing without any broker markup added, meaning the spread can be as low as 0.0 pip during periods of high liquidity. This type of pricing is commonly offered on ECN or high-tier STP accounts where the broker earns revenue through a separate commission rather than widening the spread.
Raw pricing comes from multiple liquidity sources, such as banks, ECN prime brokers, and institutional liquidity pools. Because these providers compete to quote the best bid and ask prices, traders often receive extremely tight spreads that closely reflect real market depth. However, the spread still fluctuates with liquidity conditions and may widen during news events or thin trading hours.
Raw spreads are typically preferred by:
This structure offers transparency and cost efficiency for traders who rely on tight execution and precise pricing.
The forex market offers several types of spreads, and each works differently depending on broker model, liquidity conditions, and trading strategy. In simple terms, spreads can be fixed, variable, ultra–low variable, or raw, and understanding these differences helps traders choose the most cost-efficient account type for their trading style.
The comparison below summarises how each spread type functions, its advantages, disadvantages, and who it is best suited for.
Comparison Table: Types of Forex Spreads
Spread Type |
Definition |
Typical Spread Range |
Advantages |
Disadvantages |
Best For |
|---|---|---|---|---|---|
| Fixed Spreads | A spread that remains constant regardless of market volatility. Broker sets a fixed bid–ask difference. | Usually 1.5–3.0 pips on major pairs | Predictable costs; stable pricing; ideal for beginners | Higher cost than raw/ECN; may widen during extreme volatility; not market-reflective | Beginners; low-frequency traders; those needing stable pricing |
| Variable Spreads | A floating spread that changes with liquidity and volatility. | Tight in liquid markets (0.1–1.0 pips), wider in volatility (5+ pips) | Reflect real market conditions; competitive pricing during active sessions | Costs unpredictable; may widen sharply during news; more complex to manage | Day traders; swing traders; traders active during liquid sessions |
| Ultra–Low Variable Spreads | A form of floating spread with near-zero pricing sourced from multiple LPs; commission charged separately. | 0.0–0.3 pips in liquid periods; 5–10 pips in volatility | Lowest trading costs; no broker markup; ideal for precision strategies | Commission fees; spreads still widen; higher deposits required | Scalpers; EA/algorithmic traders; high-frequency traders |
| Raw Spreads | True interbank prices with zero markup from the broker; commission charged. | 0.0–0.2 pips under normal liquidity | Transparent pricing; lowest overall cost for active traders; ideal for advanced strategies | Commission mandatory; volatile spreads; requires experience | High-volume traders; news traders; ECN users; algorithmic systems |
This comparison helps traders quickly identify which spread model aligns with their strategy and risk tolerance. As a result, choosing the right spread type can significantly improve execution, lower costs, and enhance long-term trading performance.
In forex trading, the spread changes because the bid and ask prices constantly move with market conditions. The key reason is that liquidity and volatility are never static, so the difference between the bid and ask widens or narrows based on how actively the market is trading.
When liquidity is high, spreads tend to tighten. When volatility increases or liquidity drops, spreads typically widen.
Several major factors influence spread changes, including trading sessions, volatility, overall market liquidity, news events, currency pair type, and broker model. Understanding these factors helps traders anticipate when spreads are likely to rise or fall, improving trade timing and cost management.
Different forex sessions create different liquidity conditions, which directly affect spreads. The core principle is higher liquidity → tighter spreads, while lower liquidity → wider spreads.
Trading Session Spread Characteristics
Trading Session |
Liquidity Level |
Spread Behaviour |
|---|---|---|
| Asian Session | Low–Medium | Spreads tend to be wider due to slower market activity. |
| European Session (London) | High | Spreads usually tighten as liquidity increases. |
| U.S. Session (New York) | High | Tight spreads, especially during active market hours. |
| London–New York Overlap | Very High | Tightest spreads of the day; highest trading volume. |
| Session Opens | Volatile | Spreads may widen temporarily due to sudden price adjustments. |
| Session Closes | Lower liquidity | Spreads widen as trading volume drops. |
| After-hours / Late-night periods | Very Low | Spreads often widen significantly. |
The session you trade in can impact your trading costs, which is why many traders prefer the London or London–New York overlap.
Read more：Best time to trade forex: When to enter the market during the day
Higher market volatility usually causes spreads to widen. When prices move rapidly, liquidity providers adjust their quotes to manage risk, leading to unstable or temporarily expanded spreads.Examples include:
As a result, volatility increases trading costs and makes short-term strategies harder to execute.
Market liquidity refers to how easily trades can be executed without affecting price.
Liquidity comes from major institutions, liquidity providers (LPs), and overall market participation. When liquidity thins, spreads widen to reflect increased risk.
Major news releases often cause spreads to widen sharply. High-impact events create uncertainty, causing liquidity providers to reduce exposure, resulting in wider bid–ask differences.
Common widening events:
During these events, spreads may widen by several pips-even on major pairs.
Read more:FOREX NEWS
Different currency pairs naturally have different spread ranges.
The lower the trading volume, the wider the typical spread will be.
Broker models also influence how spreads behave.
Brokers may widen spreads during extreme volatility to protect against slippage and execution risks.
Forex spread trading strategies focus on using spread behaviour-tightening or widening-to reduce trading costs or improve trade timing. In simple terms, these strategies help traders choose when to trade, which pairs to trade, and how to adapt their approach based on spread conditions. Understanding these methods can improve profitability and reduce unnecessary trading costs.
Below are the four key spread-based trading strategies.
The low spread currency pairs strategy focuses on trading major pairs that naturally have tight spreads, such as EUR/USD, GBP/USD, and USD/JPY. The core principle is that lower spreads reduce overall trading costs, making this approach ideal for active traders who enter the market frequently.
This strategy works because major pairs have strong liquidity, especially during the London and New York sessions. However, traders should be aware that spreads may still widen during news events or low-liquidity periods.
Best suited for:
Key benefits:
Time-based spread trading focuses on entering trades during periods when spreads are naturally at their lowest-typically during the London session or the London–New York overlap. In simple terms, the strategy is built around trading when the market is most liquid.
This strategy works because spreads tighten when institutional participants are most active. However, spreads may widen briefly at session opens due to sudden price adjustments.
Best suited for:
Key benefits:
Scalping with tight spreads is a strategy where traders make many small trades aiming for small price movements. Because scalpers open dozens or sometimes hundreds of trades in a session, spread size becomes one of the most important factors.
This strategy works best with ECN accounts, where spreads can be near zero, but a commission applies. Traders must also consider spread widening during news releases, as scalping requires extremely stable and low-cost conditions.
Best suited for:
Key benefits:
The news avoidance strategy focuses on avoiding trades shortly before and after high-impact economic events. In simple terms, traders stay out of the market when spreads are likely to widen dramatically.
This strategy works because spreads often spike during releases such as NFP, CPI, FOMC, and major geopolitical headlines. Avoiding these moments protects traders from unexpected costs and slippage.
Best suited for:
Key benefits:
Read more：15 Best Trading Strategies Recommended by Top Traders
A good spread in forex is typically 1–2 pips for major currency pairs during high-liquidity sessions. Lower spreads indicate better trading conditions, while wider spreads suggest higher volatility or reduced liquidity.
A lower spread is better because it reduces trading costs and requires a smaller price movement to reach break-even. A higher spread increases costs and usually signals low liquidity or high volatility.
A spread is measured in pips, with most major pairs using 0.0001 as one pip. For example, a 2-pip spread on EUR/USD might appear as 1.1051 / 1.1053.
Forex spreads are affected by liquidity, volatility, trading sessions, broker model, and economic or geopolitical events. High-impact news and low-liquidity periods usually cause spreads to widen.
The bid-ask spread is the difference between the bid price (selling price) and the ask price (buying price) of a currency pair. It represents the immediate cost traders pay when opening a position.
Spreads directly reduce potential profits because they act as an initial cost. A trade must move beyond the spread in your favour before becoming profitable. Wider spreads require larger market moves, increasing difficulty for short-term strategies.
In simple terms understanding the spread in forex is essential for every trader because it represents the fundamental cost of entering the market.
The spread reflects the difference between the bid and ask prices, showing how liquidity, volatility, and market conditions shape trading costs in real time. To put it simply: tight spreads reduce costs and improve efficiency, while wider spreads increase the amount the market must move before a trade becomes profitable.
Throughout this guide, I have covered how spreads are calculated, how spread quotes work, why spreads change, and the different types of spreads offered by brokers. Together, we have also explored practical trading strategies built around spread behaviour, helping traders minimise unnecessary costs and choose optimal trading times.
By understanding how spreads work in practice, traders can make better decisions, improve trade timing, and enhance overall profitability. The spread is not just a small number on a price chart-it’s a key component that shapes your trading edge.
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