What Is a Spread in Trading?

What is a spread in trading? Learn how the bid-ask spread works, how to calculate what it costs you per trade, and why it widens when markets get busy or thin.

The spread is the difference between the price at which you can buy an instrument and the price at which you can sell it. It is the first cost of every trade, and on instruments with no commission it is the whole cost of entering a position. Holding a position overnight adds a separate financing charge.

Key Takeaways

• The spread is the gap between the bid and the ask. You buy at the ask and sell at the bid, so every trade opens slightly below break-even.
• Its cost in money depends on position size, not just the number of pips.
• Spreads are usually variable. They tighten when markets are deep and widen when they are thin or volatile.
• On currency trades at MarketsAll there is no commission, so the spread is the whole cost of entry.

How the Spread Works

Your platform shows two prices for every instrument:

The bid is where you can sell. The ask is where you can buy. Here the gap is 0.9 of a pip.

If you buy at 1.08509 and immediately sell, you sell at 1.08500. You have lost 0.9 pips without the market moving. That is the spread doing its job: it is how the broker and the liquidity providers behind it are paid for providing a price you can trade on at any moment.

Two things follow. First, every trade starts with a small unrealised loss equal to the spread. Second, the market has to move in your favour by at least the spread before you break even.

A note on how MT5 displays it

MetaTrader 5 shows spreads in points, and a point is the last digit on the screen. For a five-decimal EURUSD quote, one point is a tenth of a pip. So a spread displayed as "9" is 0.9 pips, not 9 pips. Newer traders regularly misread this and think spreads are ten times wider than they are.

Worked Calculation: What a Spread Actually Costs

The cost of a spread in money is:

Spread (in pips) × pip value × number of lots

On EURUSD one pip on a standard lot is worth about $10. So:

The last row is the important one. The same position, entered during a thin overnight session when the spread has widened to 3 pips, costs more than three times as much before it has moved.

(Figures assume EURUSD at about 1.0850 and a USD account. Pip value varies with the pair and your account currency.)

Why Spreads Widen

Spreads are not fixed. They reflect how much liquidity is available at that moment, and liquidity is not constant.

• Thin hours. Between the New York close and the Asian open, fewer participants are quoting. The same EURUSD that shows 0.9 pips in London hours might show 2 or 3 pips at 22:00 UTC.
• Scheduled news. In the seconds around a major release on the economic calendar, liquidity providers pull back and spreads on even the most liquid instruments can widen sharply. This is also when slippage is most likely.
• Instrument. Major pairs carry the tightest spreads. Exotic pairs, smaller shares and less-traded commodities carry wider ones, and those widen more under stress.
• Account type. MarketsAll quotes EURUSD from 0.9 pips on Standard accounts and from 0.1 on Premium. "From" means the minimum in normal conditions, not a guarantee.

Why It Matters

The spread is a per-trade cost that scales with how often you trade. A trader who opens ten positions a day pays the spread ten times. A scalping approach that targets a few pips per trade can spend most of its expected profit on spreads alone.

It also interacts with your other costs. On currency trades at MarketsAll there is no commission, so the spread is the full cost of entry. There is no commission on CFDs either, so on those the spread is the full cost of entry as well. And positions held overnight incur overnight financing in addition to the spread paid at entry. The contract specification for each instrument lists all three.

Risks Related to the Spread

• Widening at the wrong moment. A stop-loss order is triggered at the bid for a long position. If the spread widens sharply around news, the bid can hit your stop while the mid price has barely moved.
• Underestimating cost on frequent trading. Spread cost per trade is small; spread cost per month on an active account is not.
• Comparing headline minimums. "From 0.1 pips" is a floor. What matters is the spread at the times you actually trade.

What is a good spread in forex?

Under 1 pip on major pairs in normal London-hours conditions is competitive. Spreads on minors are typically 1–3 pips, and exotics can run 10 pips or far more.

Is the spread charged on both entry and exit?

The spread is not a separate bill. It is built into the prices you trade at: you buy at the ask and sell at the bid, so relative to the mid price you give up roughly half the spread on entry and half on exit. Because spreads vary, the spread at exit can differ from the spread at entry.

Why does the spread change during the day?

Because liquidity changes. More participants quoting means tighter spreads; fewer means wider. The London–New York overlap is typically the tightest period for major currency pairs.

Does the spread affect my stop-loss?

Yes. A long position is closed at the bid, so a widening spread moves the bid toward your stop even if the mid price is steady. Stops placed very close to the current price are the most exposed to this.

Is a fixed spread better than a variable spread?

A fixed spread is predictable but usually wider on average. A variable spread is tighter in normal conditions and wider under stress. MarketsAll quotes variable spreads.

Related Terms

What is CFD trading · Pip · Lot · Slippage · Overnight financing