Forex Spreads Explained: What They Are and How to Pay Less

Every forex trade starts with a small cost that many beginners overlook: the spread. It is how most brokers get paid, and over hundreds of trades it can take a large share of your profits. This guide explains what the spread is, how to work out its cost in dollars, why it widens, and how to pay less.

What Is a Spread in Forex?

Every currency pair has two prices: the bid, which is the price you can sell at, and the ask, which is the price you can buy at. The ask is always slightly higher than the bid, and the difference is the spread, usually measured in pips.

For example, if EUR/USD shows a bid of 1.08000 and an ask of 1.08012, the spread is 1.2 pips. The moment you buy, you are down by the spread, and the price has to move in your favour by that amount before you break even.

How to Calculate the Cost of a Spread

The formula is simple:

Spread cost = spread in pips × pip value × lot size

• On a 0.10 lot of EUR/USD, one pip is worth about $1, so a 1.2 pip spread costs about $1.20.
• On a 1.00 standard lot, one pip is worth about $10, so the same spread costs about $12.

That cost is charged on every trade you open, win or lose. If you want to see how pip value and lot size fit together, our Risk Management Calculator does the maths for you.

Fixed vs Variable Spreads

A fixed spread stays the same whatever the market is doing. A variable spread changes with liquidity and volatility, so it is tight in busy sessions and wide when the market is thin or nervous. Most retail brokers offer variable spreads on their main accounts, and fixed spreads are less common.

Standard Accounts vs Raw Spread Accounts

Some brokers include their fee in a wider spread. Others offer a raw spread, which is very tight, and charge a separate commission per lot. Neither is automatically cheaper, so compare the total cost.

Here is an example with made-up numbers, for a 0.10 lot on EUR/USD:

Account type	Spread	Commission	Total cost
Standard	1.2 pips ($1.20)	None	$1.20
Raw spread	0.1 pips ($0.10)	$0.70	$0.80

Prices differ by broker and change through the day, so always check your own account’s numbers.

Why Spreads Widen

• High-impact news. Spreads can widen sharply around central bank decisions and major data releases. See our forex week ahead guide for this week’s events.
• The daily rollover. Around 5:00 PM New York time, when the trading day rolls over, liquidity is thin and spreads often jump.
• Quiet sessions and market open. Spreads are usually wider when few traders are active, such as the first minutes after the weekly open.
• Less popular pairs. Exotic and minor pairs generally have wider spreads than majors like EUR/USD.

How the Spread Affects Your Stop Loss

Most charts show the bid price. A buy trade closes at the bid, but a sell trade closes at the ask. That means a stop loss on a short trade can trigger when the ask reaches it, even if the bid price on your chart has not touched your level. When the spread widens, this effect gets bigger, so give your stops a little room around news.

How to Pay Less in Spreads

• Trade liquid pairs such as EUR/USD, GBP/USD and USD/JPY.
• Trade during busy sessions. The London and New York overlap usually has the tightest spreads. Our forex market hours clock shows the overlap in Nepal time, and our forex trading sessions guide explains why it matters.
• Avoid opening trades right before big news and during the daily rollover.
• Compare total cost, including spread, commission and any swap fees, not only the advertised spread.
• Use limit orders when you do not need to enter immediately.
• Do not over-trade. Fewer, better trades mean fewer spreads paid.

Frequently Asked Questions

What is a good spread for EUR/USD?

It depends on the broker and the account type. On major pairs in normal conditions, raw spread accounts can be well under 1 pip plus commission, while standard accounts are often around 1 to 2 pips. Always compare the total cost.

Are zero spread accounts really free?

Usually not. Brokers that advertise zero spreads typically charge a commission or have other costs, so check the full fee structure.

Why did my spread suddenly widen?

The usual causes are a news release, the daily rollover, or low liquidity. If you see it happen often at the same time, change when you trade.

Final Thoughts

The spread is a cost you cannot avoid, but you can control how much of it you pay. Trade liquid pairs in busy sessions, stay away from the worst moments, and always judge a broker by total cost.

This article is for education only and is not financial advice. Forex trading carries a high risk of loss, and most retail traders lose money.

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