The bid-ask spread in forex is one of the most important yet often overlooked aspects of trading. It directly influences your trading costs, profitability, and overall strategy execution. When you look at a currency quote, you’re seeing two prices—the bid price and the ask price.
The difference between these two is the spread. This small gap holds major implications for traders of all levels. Understanding the bid-ask spread in forex is essential to managing forex trading costs effectively and avoiding unexpected losses.
In this guide, we’ll explain what the bid-ask spread in forex means, how spreads affect forex trades, and how traders can minimize their exposure to this hidden cost.
Understanding the Bid and Ask in Forex
The bid price is the highest price a buyer is willing to pay for a currency pair. The ask price is the lowest price a seller is willing to accept. The bid-ask spread in forex is the numerical difference between these two values.
For example, if EUR/USD is quoted as:
- Bid: 1.1050
- Ask: 1.1053
The spread is 3 pips. This spread acts as a hidden cost. You pay the ask price when buying and receive the bid price when selling.
Forex brokers often make their profit from this spread. Whether it’s a market maker or ECN broker, understanding the spread is crucial. The bid-ask spread in forex is affected by factors like liquidity, volatility, and broker type. These factors also influence overall forex trading costs.
Why the Bid-Ask Spread Matters for Traders
The bid-ask spread in forex matters because it directly impacts how much you pay to enter or exit a trade. This becomes critical for short-term strategies such as scalping and day trading. A high spread increases your break-even point, requiring more pips to cover the cost before seeing profit.
Let’s break it down with a real-world example:
- You enter a buy trade on GBP/USD at 1.3000 (ask price)
- The bid price is 1.2997
- You’re already down 3 pips as soon as the trade opens
Those 3 pips represent a cost. In a standard lot (100,000 units), that’s $30 instantly lost. That’s why knowing how spreads affect forex trades is critical to managing risk and profitability.
What Influences the Bid-Ask Spread in Forex?
Several market and broker-related factors influence the spread. These include:
- Currency pair: Major pairs like EUR/USD have tighter spreads than exotic pairs like USD/ZAR.
- Market hours: Spreads are narrowest during peak trading sessions such as the London-New York overlap.
- Economic events: News releases can create sudden spikes in spreads due to increased forex liquidity and volatility.
- Broker type: ECN brokers show raw spreads but charge commissions. Market makers offer fixed spreads that widen in volatility.
- Liquidity: The more liquid a market is, the smaller the spread. In low-liquidity environments, spreads often widen significantly.
Each of these factors affects your forex trading costs either directly or indirectly. That’s why comparing brokers based on their average spreads is essential.
Forex Liquidity and Volatility Impact on Spreads
Forex liquidity and volatility play a massive role in determining the bid-ask spread. When liquidity is high, spreads are usually low because there are more buyers and sellers. This typically happens during active market sessions. For example, EUR/USD may have a 0.5–1 pip spread during London hours.
In contrast, during low-volume times like the early Asian session or holidays, spreads widen. Additionally, major events such as Non-Farm Payrolls (NFP) or interest rate announcements spike volatility. This combination of high volatility and inconsistent liquidity can lead to spreads jumping by 10–50 pips or more.
To manage this risk, traders often avoid entering new trades right before big news events unless their strategy specifically capitalizes on volatility.
How Spreads Affect Forex Trades in Different Strategies
The bid-ask spread in forex affects every trading strategy differently. Let’s look at some key styles:
Scalping
- Spreads are a critical factor
- A 1–2 pip difference can wipe out profitability
- Traders must use low-spread brokers and high-volume pairs
Day Trading
- Slightly more room for spread absorption
- Still requires monitoring the spread-to-target ratio
Swing Trading
- Spread costs are less impactful over larger pip targets
- Still important for accurate risk-to-reward calculations
News Trading
- Spread spikes can trigger stop-losses or slippage
- Many brokers widen spreads during events, affecting order execution
No matter the strategy, knowing how spreads affect forex trades helps traders plan smarter entries, exits, and risk controls.
How to Reduce the Impact of Forex Trading Costs
Reducing the bid-ask spread in forex trading requires a combination of strategic choices and tools. Here are some practical tips:
- Choose pairs with low spreads: EUR/USD, USD/JPY, and GBP/USD are ideal
- Use ECN brokers with tight spreads and low commission
- Trade during high-liquidity hours (London or London-New York overlap)
- Avoid placing trades during low-volume periods
- Use limit orders instead of market orders to control entry prices
- Monitor broker conditions: Check average spread reports regularly
By implementing these methods, traders can significantly lower their forex trading costs.
Forex Broker Spread Comparison: What to Look For
When selecting a broker, don’t just look at the advertised minimum spread. Instead, analyze average spreads across different pairs and during various market conditions.
Here’s what to consider:
- Raw spread vs. fixed spread: Raw spreads are variable but lower; fixed spreads offer predictability
- Commission structure: Some brokers charge $6–$7 per round turn for ECN accounts
- Spread widening during news: Some brokers are more stable than others during volatile periods
- Execution speed: Slower execution can worsen the spread impact, especially with market orders
A good forex broker spread comparison helps traders make cost-effective decisions. You can usually find this data on broker websites or independent review portals.
Real Cost of Spreads Over Time
Let’s say you trade 1 standard lot (100,000 units) on EUR/USD with an average 1.5-pip spread. That’s $15 per trade. If you trade 5 times a day:
- Daily cost = $75
- Monthly cost = $1,500
- Yearly cost = $18,000
Even a half-pip improvement can save thousands over a year. That’s why understanding the bid-ask spread in forex is not optional—it’s essential.
How Forex Liquidity and Volatility Shift Throughout the Day
The forex market is open 24 hours a day, but not all hours are equal. Liquidity and volatility shift between regions, impacting spreads throughout the day.
- Asian session: Lower liquidity, wider spreads
- London session: High liquidity, tight spreads
- New York session: Strong liquidity, volatile during news
- Overlap period: Best time for tight spreads and volume
Traders should align their strategies with these liquidity windows to avoid unnecessary trading costs.
Common Mistakes Traders Make Regarding Spreads
Many traders ignore the spread when planning their trades. This can lead to overtrading, especially in volatile pairs or during news releases. Others assume all brokers offer the same spread conditions, which is far from true.
Here are mistakes to avoid:
- Trading exotic pairs without accounting for spread impact
- Using market orders without checking real-time spread
- Overleveraging small accounts, amplifying spread losses
- Ignoring forex broker spread comparison when choosing a platform
Avoiding these mistakes can preserve capital and reduce unnecessary losses over time.
Conclusion: Why Every Trader Should Care About the Bid-Ask Spread
The bid-ask spread in forex is one of the most fundamental aspects of trading, yet many traders fail to understand its implications fully. It acts as a hidden cost that affects your bottom line. By recognizing how spreads influence different trading strategies, monitoring market conditions, and comparing broker options, traders can significantly reduce forex trading costs.
Furthermore, understanding forex liquidity and volatility patterns helps in choosing the best time to trade with minimal spread impact. A well-informed trader who understands how spreads affect forex trades is always better equipped to succeed long-term.
If you want to improve your trading results, start by analyzing the bid-ask spread in forex. Your performance may improve more from cutting costs than chasing more pips.
Click here to read our latest article What Is a Forex Broker and How to Choose the Right One in 2025?
This post is originally published on EDGE-FOREX.
