What is Spread?

The spread is the difference between the bid (sell) price and the ask (buy) price. It is the immediate cost of executing a trade.

In-Depth Explanation

The spread is the broker’s primary source of revenue. When you open a trade, you are immediately down by the cost of the spread. If the EUR/USD bid price is 1.0800 and the ask price is 1.0801, the spread is 1 pip. Spreads are variable. During high-impact news events (like NFP or CPI), brokers pull their liquidity, causing spreads to "widen" massively. A spread that is normally 1 pip can instantly widen to 20 pips. This is why trading directly through news announcements is notoriously dangerous and often leads to catastrophic slippage on your stop loss.

Beware of "Zero Spread" accounts. Brokers will often advertise 0.0 pip spreads, but they compensate by charging a massive flat commission per lot traded. Always calculate the total cost of the trade (Spread + Commission).

PETE'S TIP

"Never hold a short-term day trade over the weekend. Spreads frequently widen to ridiculous levels when the market re-opens on Sunday night, easily triggering stop losses before the price stabilizes."

Practical Example

"You buy the FTSE 100 at 7601 (ask) while the sell price is 7600 (bid). You are instantly down 1 point. The market must move up 1 point just for you to break even."

Learn More In

Phase 1: Foundations

Related Terms

Pip Liquidity Slippage

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