In forex trading, the spread is the difference between the bid price (the price at which you can sell) and the ask price (the price at which you can buy) of a currency pair. It represents one of the main sources of revenue for brokers.
For example, if a broker receives a quote from the interbank market with a spread of 1 pip, they may add 0.1 pip to each side, resulting in a quoted spread of 1.2 pips for the trader. This means that every trade comes with a cost equal to that spread.
The lower the spread, the cheaper the transaction cost—making it a key competitive factor among brokers.
Several factors influence the spread a broker offers:
Broker business model:
Market Makers typically offer fixed spreads, which are predictable but often higher.
ECN or STP brokers provide spreads close to raw market prices but charge additional commissions per trade.
Market liquidity:
Brokers connected to multiple liquidity providers tend to offer tighter spreads.
Trading hours:
Spreads usually narrow during peak trading hours when London and New York sessions overlap, and widen during off-hours or around major news releases.
Pricing policy:
Each broker has its own pricing strategy, choosing between low spreads to attract traders or higher spreads to cover service costs.
Under stable market conditions, spreads remain relatively low. However, during periods of high volatility—such as after interest rate announcements, GDP releases, or geopolitical events—spreads can widen by several pips or even tens of pips.
This sudden increase in trading costs can be especially risky for scalpers or traders using large position sizes.
Some brokers advertise zero spreads or near-zero spreads (0.1–0.2 pips for EUR/USD) via ECN accounts. In this case, traders pay a fixed commission instead of a spread.
While this model offers transparent and predictable costs, it may not always be cheaper for retail traders compared to fixed-spread accounts, especially for smaller trade sizes.
The variation in spreads across brokers is normal and depends on their business model, liquidity access, and pricing strategy. To make an informed choice, traders should:
Compare actual spreads during both normal market conditions and high volatility.
Consider total trading costs, including commissions and hidden fees.
Choose regulated brokers with strong reputations and transparent pricing.
💡 Conclusion: A spread is more than just a number—it reflects how a broker operates and competes in the market. By understanding why spreads differ and how they change in various conditions, traders can better manage costs, reduce risks, and improve long-term trading performance.
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