How markets workUpdated 3 min readBy the FXNOD team
What is spread in trading?
The spread is the difference between the price you can buy at, the ask, and the price you can sell at, the bid. It is a cost paid on every trade: a position opens at a small loss equal to the spread. Spreads are narrowest on heavily traded markets in busy hours and widen around news and in quiet periods.
Bid, ask and spread
Every market quotes two prices. You buy at the higher one, the ask, and sell at the lower one, the bid. If a currency pair is quoted at 1.1000 bid and 1.1002 ask, the spread is 0.0002, or 2 pips. Buy and sell again immediately and you lose those 2 pips.
What the spread costs in money
| Position size | Units | Cost of a 2-pip spread on a dollar-quoted pair |
|---|---|---|
| Micro lot | 1,000 | About 0.20 |
| Mini lot | 10,000 | About 2 |
| Standard lot | 100,000 | About 20 |
The cost is paid on every trade, win or lose. A trader making ten trades a day with a 2-pip spread starts each day 20 pips behind.
Why spreads change
- Liquidity: popular markets with many participants have narrow spreads.
- Time of day: spreads narrow when major sessions are open and widen in the quiet hours between them.
- News: spreads can widen many times over in the seconds around a major release.
- Volatility: when prices move fast, those quoting them protect themselves with a wider gap.
Fixed and variable spreads
A variable spread moves with the market and is usually lower in calm conditions. A fixed spread stays the same in normal conditions and is usually a little higher. Some accounts quote a very narrow spread and charge a separate commission per trade. Compare the total cost, spread plus commission, for the size you trade.
Why it matters most for short-term trading
A 2-pip spread is 2% of a 100-pip target and 20% of a 10-pip target. The shorter the trade, the larger the share of its profit the spread takes. Many scalping strategies that look profitable on a chart are not once the spread is subtracted from every trade.
Contracts without a visible spread
Fixed-payout options do not show a bid and ask. The cost is built into the payout instead: a contract on an even chance that pays less than double the stake carries its cost in that difference. Read the payout quoted for a contract the way you would read a spread.
Questions people ask
- Is a lower spread always better?
- Lower total cost is better. A narrow spread with a high commission can cost more than a wider spread with none. Add them up for your trade size.
- Why did my trade open at a loss?
- Because you bought at the ask and the position is valued at the bid. The opening loss is the spread.
- Why did the spread suddenly widen?
- Usually news, a quiet session, or a market reopening. Spreads return to normal when liquidity does.
- What is a pip?
- The standard unit of movement for a currency pair, usually the fourth decimal place, or the second for pairs quoted against the yen.
Watch it on a live chart
Open Trade Pilot with your Deriv demo account, pick a market, and see how the price behaves tick by tick, with virtual funds.
Get started