Spread in Forex: All You Need to Know

Spread in Forex: All You Need to Know

If you’ve ever watched a candle reach your entry level or target, only to find your order never filled, you’ve already seen how spread in forex can affect real trades. The same goes for the frustrating moment when you get stopped out even though the wick on your chart looks like it never touched your stop-loss. 

These situations can feel confusing at first, but they make sense once you know that forex is quoted with two prices and trades execute on one side of that quote, not the “middle”.

This article explains spreads in forex in a practical way: what it is, why it exists, how it influences execution, and how to reduce its impact without overcomplicating your approach.

What Is Spread in Forex?

Spread in forex is the difference between the two prices shown for a currency pair:

• Bid: the price you can sell at
  
• Ask: the price you can buy at
  

The spread is calculated as:

Spread = Ask − Bid

Because you buy at the ask and sell at the bid, the spread is built into your trading cost from the moment you enter a position.

A Simple Example in Pips

If EUR/USD is quoted as:

• Bid: 1.1050
  
• Ask: 1.1052
  

The spread is 0.0002. On most major pairs, 0.0001 is 1 pip, so this is a 2 pip spread. That 2 pips is the gap price needs to move in your favour before the trade reaches break-even.

Why Forex Has Two Prices

Forex does not use a single price because buying and selling happen at different levels. The bid reflects what the market will pay if you sell. The ask reflects what the market will charge if you buy. The difference between them exists because pricing is constantly balancing supply, demand, and the risk of providing liquidity.

In many retail accounts, spread in forex is also how trading costs are built in. Instead of charging a separate commission, the broker or liquidity provider earns through the bid-ask gap. Some account types charge commission and offer tighter spreads, but the bid and ask structure remains the same.

Why Spread in Forex Matters When You Enter a Trade

A spread is not a background detail. It changes how your trade looks and behaves the moment you click buy or sell.

Your Trade Often Starts Slightly Negative

A buy trade enters at the ask. If you closed immediately, you would exit at the bid. That difference is the spread, which is why many trades show a small unrealised loss right after entry even when price has not moved.

Break-Even Shifts by the Spread

A trade needs to move in your favour by at least the size of the spread (plus any commission) before you reach break-even.

Small Targets Feel the Spread More

On a lower timeframe, many traders target 10 to 20 pips. A 2 to 4 pip spread is a large portion of that range. On higher timeframes where targets may be 40 to 200 pips, the same spread is much less significant relative to the overall move.

Main Issues that Traders Face With Spreads

Why Price Can “Touch Your Level” But the Order Doesn’t Fill

This is where spread in forex becomes visible in a way traders remember. You might see candles touch your entry line or profit target, yet your order never executes.

Many platforms display the bid price on the chart by default. Orders do not always trigger based on the bid.

• Buy orders execute at the Ask
  
• Sell orders execute at the Bid
  

If your chart shows bid and you place a buy limit at a specific price, the bid candle can appear to hit that level while the ask stays above it. The order won’t fill because the tradable buy price never reached your limit.

A similar issue can happen with targets. If you’re short, your profit is realised when you buy back to close, which happens at ask. The bid can print through your target on the chart while the ask never reaches the trigger point, leaving the position open.

Platforms that allow an “Ask line” or display both bid and ask make this behaviour much easier to see because the chart shows the gap your order responds to.

Why You Can Get Stopped Out Without the Wick Touching Your Stop

Another common complaint is being stopped out even when the candle never visibly touched the stop-loss level. This often comes down to which price is used to close the trade, especially when spreads widen.

Stop-loss orders trigger based on the price used to exit:

• Long positions close by selling at the Bid
  
• Short positions close by buying at the Ask
  

If you’re in a short trade and your chart displays bid, the bid candle may stay below your stop level while the ask rises enough to hit it. In fast markets or thin liquidity, spreads can widen and the ask can move further away from the bid than usual. 

That widening can be the difference between staying in the trade and being stopped out.

Fixed vs Variable Spreads in Live Markets

Spreads generally fall into two categories depending on your broker and account type.

Fixed Spreads

Fixed spreads are designed to stay relatively stable. They can feel predictable when planning entries and stops, though some brokers may adjust them in unusual market conditions.

Variable (Floating) Spreads

Variable spreads change with liquidity and volatility. They can be very tight during active market hours and wider during news releases, rollover periods, or low-liquidity windows. This behaviour matters most when stops are tight, targets are small, or execution needs to be precise.

What Causes Spreads to Widen or Tighten?

Spreads change because market conditions change.

Liquidity

Higher liquidity usually means tighter spreads. Major pairs tend to have tighter spreads because they are heavily traded. Crosses and less traded pairs often have wider spreads.

Volatility and News

During high volatility, pricing becomes riskier for liquidity providers, so spreads often widen. This is common around major economic announcements and sudden market shocks.

Time of Day and Session Transitions

Spreads often widen during quieter windows, particularly around daily rollover and session transitions. Reduced participation can lead to less competitive pricing, which shows up as a wider bid-ask gap.

Currency Pair Choice

Some pairs naturally carry wider spreads than others. A pair like GBP/NZD is often used as an example of a higher-spread pair compared with major pairs such as EUR/USD, though the exact size varies by broker and market conditions.

How to Use Spread in Forex Correctly

Before estimating cost, check the live spread and remember your chart may show bid while buys execute on ask. Give stops and targets enough room for spread changes, especially during low-liquidity hours or news.

How to Estimate the Real Cost of Spread

Spreads are usually shown in pips, but the cost scales with position size. A simple way to estimate the impact is:

Spread cost ≈ spread (pips) × pip value × position size

For many USD-quoted major pairs (in a USD account), traders often use rough reference points:

• Standard lot: about $10 per pip
  
• Mini lot: about $1 per pip
  
• Micro lot: about $0.10 per pip
  

If the spread is 2 pips and you trade a mini lot, the estimated spread cost is:
2 pips × $1/pip = $2.

This is one reason spread in forex becomes especially noticeable for frequent traders. The cost repeats on every entry.

How to Reduce the Impact of Spread in Forex

You can’t remove spread in forex, but you can make it less disruptive.

Trade More Liquid Pairs When Precision Matters

Major pairs often have tighter spreads. If your strategy relies on small targets or tight stops, this can reduce friction.

Avoid Thin Liquidity Windows

Spreads often widen around rollover, session transitions, and major news. If you trade lower timeframes, these windows can distort fills and trigger stops more easily.

Match Your Timeframe to Your Target Size

A spread that feels large on a five-minute chart is often less significant on higher timeframes where targets are larger.

Compare Total Trading Cost, Not Just Spread Headlines

Some accounts offer tighter spreads with commission, while others bundle costs into wider spreads. Comparing the all-in cost is more useful than comparing “minimum spreads”.

Show Both Bid and Ask on Your Platform

If your platform supports it, enabling an ask line or viewing both quotes reduces confusion around missed fills and stop triggers.

Final Thoughts

Spread in forex is a simple concept with real consequences. It influences break-even, execution, and the way stops and targets behave in live markets. It also explains why trades can look like they should have filled on the chart but didn’t, and why stops can trigger even when the bid candle looks clear.

Once you account for spread in forex in pair selection, timing, and stop placement, trade execution becomes more predictable and strategy results become easier to evaluate.

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