What Is a Forex Spread? Understanding Trading Costs
Every forex trade starts with a small built-in cost: the spread. This guide explains what a spread is, how to read bid and ask prices, how to calculate what a spread costs you, and why it changes. You can try the numbers yourself in the estimator below.
Educational guide · About 7 minutes · The interactive tools below run in your browser and do not save or send your inputs.
The bid is the price at which you can sell; the ask is the price at which you can buy. The gap is the spread. This bar updates with the estimator below. Prices are illustrative, not live quotes.
What is a forex spread?
A forex spread is the difference between the price at which you can sell a currency pair (the bid) and the price at which you can buy it (the ask). When you open a trade you buy at the higher price or sell at the lower one, so a trade begins slightly behind the market. The spread is one of the main ways providers are paid, and one of the first costs a trader should understand.
Spreads are usually measured in pips. For most pairs a pip is 0.0001, and for pairs that include the Japanese yen it is usually 0.01. Many providers also quote a fifth decimal place, called a pipette or fractional pip.
How to calculate a spread
A worked example with illustrative prices
1. Read the quote. EUR/USD bid 1.08480, ask 1.08500.
2. Subtract. 1.08500 − 1.08480 = 0.00020.
3. Convert to pips. 0.00020 ÷ 0.0001 = 2 pips.
4. Turn pips into money. On a 0.10 lot (10,000 units) of a pair quoted in US dollars, one pip is worth about $1, so a 2-pip spread costs about $2 per trade before any commission.
Pip values differ by pair, lot size, and contract specifications. Always check your own provider's figures.
Spread cost estimator
Enter a spread to see what it costs per trade, per day, and per month.
This is a simplified estimate. For other pairs, a yen quote currency, commissions, and account comparisons, use the full NKD Forex Spread Cost Calculator.
What it costs
Estimates update automatically when you change an input.
Price needs to move about 2.0 pips in your favor to cover the estimated spread and commission.
What makes spreads change?
Choose a factor to see how it can widen or tighten a spread.
Spreads vary by provider. These are general patterns, not guarantees.
Liquidity
A closer look
Fixed spreads
The gap stays the same
- Predictable. The cost per trade is easier to plan for.
- Often wider. Providers may build in extra margin to cover changing conditions.
- Not always honored. During fast markets, orders may still fill at a different price.
Variable spreads
The gap moves with the market
- Can be tighter. In busy, liquid periods the spread can be very small.
- Can widen quickly. News and thin markets can push spreads up.
- Check the whole cost. Some accounts pair a low spread with a separate commission.
Spread, commission, and other costs
Spread: built into the buy and sell prices.
Commission: a separate fee some accounts charge per lot, often quoted per side, so check whether the figure covers both opening and closing.
Swap or rollover: a financing charge or credit that can apply when a position is held overnight.
Slippage: the difference between the price you expected and the price you received, more common in fast markets.
Other fees: some providers charge for deposits, withdrawals, currency conversion, or inactivity.
A low advertised spread does not always mean the lowest total cost. Compare the full cost of trading, not one number.
How to keep trading costs in check
1. Compare total cost: Add the spread and commission for the same pair, lot size, and time of day.
2. Watch the clock: Spreads often widen around major news, market open, and rollover.
3. Mind your trade count: Each trade pays the spread, so frequent trading multiplies the cost.
4. Use a demo account: Practice and observe live spreads without risking money, where a demo is offered.
5. Verify the provider: Check that the firm is authorized by the financial regulator in your country before depositing funds.
Frequently asked questions
Tap a question to open the answer.
What is a good spread in forex?
There is no single number. What counts as low depends on the pair, the time of day, and the account type. Compare providers on the same pair and the same conditions, and include any commission.
Do I pay the spread when I close a trade?
The spread is built into the prices you trade at. A buy opens at the ask and is valued at the bid, so a new trade starts slightly negative by about the size of the spread. Your provider's statements show how costs are applied.
Is the spread the same as a commission?
No. The spread is the gap between bid and ask. A commission is a separate fee. Some accounts charge only a spread, and others charge a smaller spread plus a commission.
Why do spreads widen during news?
When prices move quickly or liquidity thins out, providers and market makers may quote a wider gap to manage uncertainty, so costs can rise at the moments when markets are most active.
What is the difference between a pip and a pipette?
A pip is usually 0.0001 (or 0.01 for yen pairs). A pipette is a tenth of a pip and appears as the fifth decimal place in many quotes.
Are zero-spread accounts really free?
Not necessarily. Accounts that advertise very low or zero spreads may charge commissions or other fees, and the spread can still widen at times. Always calculate the total cost.
References and further reading
Search each title on the organization's website for the latest version.
- Bank for International Settlements (BIS). Triennial Central Bank Survey of foreign exchange and OTC derivatives markets. bis.org
- U.S. Commodity Futures Trading Commission (CFTC). Customer education on retail forex trading and fraud. cftc.gov
- National Futures Association (NFA). Investor resources on forex trading. nfa.futures.org
- U.S. Securities and Exchange Commission (SEC). Investor education on risks of leveraged and speculative products. investor.gov
- Your country's financial regulator. Check whether a provider is authorized before you deposit funds.
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