// TRADING TERMINOLOGY

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 Pro 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 Terminology

Pip

A "pip" (percentage in point) is the foundational unit of measurement in forex trading, representing the smallest standard price move in an exchange rate.

Liquidity

The ease with which an asset can be bought or sold without affecting its price.

Slippage

The difference between the expected price of a trade and the price at which the trade is actually executed.

Lot Size

A lot is the standardized unit used to measure the volume of a trade. It dictates exactly how much money each pip of movement is worth.

Tradeable Instruments Affected

EUR/USDEuro / US Dollar

GBP/USDBritish Pound / US Dollar

USD/JPYUS Dollar / Japanese Yen

Tactical How-To Guides

How to Start Trading in the UK — Step by Step

Learn how to start trading in the UK. A complete step-by-step guide covering regulation, choosing a broker, and placing your first trade safely.

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How to Trade Forex — Beginner's Guide

A complete beginner guide to forex trading. Learn about pips, lots, currency pairs, and how to place your first forex trade.

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How to Day Trade — Step by Step

Master the art of day trading. Learn how to manage your time, choose instruments, and execute trades within a single day.

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Master the language of risk

Knowing the terms is just the start. Learning how to apply them is where the edge is found.

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