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Glossary · Forex

Spread

The difference between the buy (ask) and sell (bid) price of an instrument; in conventional trading it is a built-in cost of every position.

By Sky Trade editorial teamUpdated

Every market quotes two prices at once: the bid, at which you can sell, and the ask, at which you can buy. The spread is the gap between them. With EUR/USD at bid 1.08500 / ask 1.08508, the spread is 0.8 pip, and a conventional forex position starts slightly in the red by that amount.

Spreads are tight when liquidity is deep — major pairs during busy hours — and widen when markets are thin, around big news or at the daily rollover. A sudden widening is itself a sign that conditions are unsettled and prices may jump.

Fixed-payout trades package their cost differently. Instead of paying a spread on entry, you accept a payout below 100%: a win earns less than a loss costs. It is useful to think of the gap between the payout and 100% as doing the job a spread does elsewhere, and the break-even win rate shows how heavy that cost is.

Spreads are measured in pips; for how quotes are formed, see the quote entry.

Example

A bid of 1.26490 and an ask of 1.26505 make a 1.5-pip spread. A conventional trader buying at the ask needs the bid to rise 1.5 pips just to break even.

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