Forex Spread: Definition, Calculation, Types & Why It Matters Description

What Is the Spread?

The spread is the difference between the Ask (buy) and Bid (sell) price of a tradable instrument over a given moment. Brokers earn part of their revenue from this difference (plus any commissions). Spreads can be fixed or variable; variable spreads change with market conditions and liquidity.

How to Calculate the Spread

BID vs ASK = SPREAD (IN PIPS/POINTS)

In FX, the spread is usually measured in pips.
Example: EURUSD 1.1234 / 1.1235 → spread = 0.0001 = 1 pip.
JPY pairs quote to 2 decimals (e.g., USDJPY 150.10 / 150.12 → 0.02 = 2 pips).

Fixed, Variable & ECN Accounts

• Fixed: stable in normal conditions but can still widen during high volatility.
• Variable: tight in liquid hours; widen on news/low liquidity.
• ECN/RAW: you see near-bank spreads (often 0.1–0.2 pip on EURUSD) plus a per-lot commission.

Practical Cost Examples

• FX lots: 1 standard lot = 100,000 units of the base currency; 1 pip ≈ $10 on most USD-quoted majors.
• If EURUSD spread = 0.6 pip and you trade 1 lot, cost ≈ $6.
• Trade 10 lots → cost ≈ $60.
• Indices (CFDs): example CAC40/DAX30 spread 0.8 point; with €10/point per lot, cost = €8 per lot.
  Note: contract sizes & tick values vary by broker—always check “Contract Specs”.

How to Display Spread on MT5

WHEN IT MATTERS

• Open Market Watch → right-click → Spread (adds a live spread column).

• On a chart: right-click → Properties → Common → Show Ask line. The gap between Bid and Ask is the spread.

Why Spread Size Matters & Tips

• Short-term/day trading/scalping: spread is a big part of your P&L. Avoid entries when spreads spike (news, illiquid hours).
• Swing/position trading: spread is less critical relative to larger targets, but still part of cost control.
• Add a spread filter to systems that take many small trades; only trigger when spread ≤ typical levels.
• Combine with a basic trend filter (e.g., SMA 25 vs SMA 100) and test on a demo before going live.