What is the spread in forex and how do you calculate it? (2024)

What is the spread in forex?

The spread in forex is a small cost built into the buy (bid) and sell (ask) price of every currency pair trade. When you look at the price that’s quoted for a currency pair, you will see there is a difference between the buy and sell prices – this is the spread or the bid/ask spread.

Changes in the spread are measured by small price movements called pips – which is any change in the fourth decimal place of a currency pair (or second decimal place when trading pairs quoted in JPY). It is not only the spread that will determine the total cost of your trade, but also the lot size.

Remember, every forex trade involves buying one currency pair and selling another. The currency on the left is called the base currency, and the one on the right is called the quote currency. When trading FX, the bid price is the cost of buying the base currency, while the ask price is the cost of selling it.

With us, you can trade forex using derivatives like spread bets and CFDs, 24 hours a day. Derivative products enable you to take a position on forex without taking ownership of the underlying asset. You can go long or short, which means you can speculate on rising as well as falling currency prices. And, you only need a small deposit – called margin – to open your position.

How to calculate the spread in forex

To calculate the spread in forex, you have to work out the difference between the buy and the sell price in pips. You do this by subtracting the bid price from the ask price. For example, if you’re trading GBP/USD at 1.3089/1.3091, the spread is calculated as 1.3091 – 1.3089, which is 0.0002 (2 pips).

Spreads can either be wide (high) or tight (low) – the more pips derived from the above calculation, the wider the spread. Traders often favour tighter spreads, because it means the trade is more affordable.

If a market is very volatile, and not very liquid, spreads will likely be wide, and vice versa. For example, major currency pairs such as EUR/USD will have a tighter spread than an emerging market currency pair such as USD/ZAR. However, spreads can change, depending on the factors explained next.

Why does the spread change in forex?

The spread in forex changes when the difference between the buy and sell price of a currency pair changes. This is called a variable spread – the opposite of a fixed spread. When trading forex, you will always deal with a variable spread.

The forex spread may increase if there is an important news announcement or an event that causes higher market volatility. One of the downsides of a variable spread is that, if the spread widens dramatically, your positions could be closed or you’ll be put on margin call. Keep an eye on our economic calendar to stay abreast of upcoming financial events.

Forex trading platforms

There are a range of forex trading platforms to choose from, including our award-winning platform, MT4 or an MT4 VPS. Each of these platforms will show the forex spreads up front.

Our trading platform

Our trading platform has been voted the best in the UK,i and you can use it to trade over 80 currency pairs including majors like EUR/USD and GBP/USD, and minors like CAD/JPY and EUR/ZAR. Our minimum forex spreads start at 0.6 for EUR/USD and AUD/USD.

You’ll also get in-platform news and analysis from our expert team and Reuters, as well as technical indicators like moving averages and relative strength index (RSI) to help you conduct technical analysis.

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MetaTrader 4

MetaTrader 4 (MT4) is an automatable forex trading platform, and it has been popular with forex traders for over 15 years. When you create an MT4 account with us, you’ll get access to MT4 and our full range of MT4 forex markets, as well as a number of free indicators and addons to help you conduct analysis and customise the platform. Our minimum MT4 forex spreads start at 0.6 on EUR/USD.

We also offer an MT4 VPS, which offers low latency and reliable uptime – meaning you’re sure to get fast execution. Our MT4 VPS is hosted by Beeks in London, and it’s the fastest, most reliable VPS on the market.

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Forex spread summed up

A forex spread is the primary cost of a currency trade, built into the buy and sell price of an FX pair
A spread is measured in pips, which is a movement at the fourth decimal place in a forex pair’s quote (or second place if quoted in JPY)
To calculate the forex spread, subtract the buy price from the sell price
Forex spreads are always variable, whereas other markets’ spreads may be fixed
Spreads can either be wide (high) or tight (low)
Traders often favour tighter spreads, because it means the trade is more affordable
If a market is very volatile and not very liquid, wide spreads may occur
If a market has high liquidity but is not very volatile, tighter spreads may occur
Factors like important news announcements or an event that causes higher market volatility can cause spreads to change

FAQs

What is the spread in forex and how do you calculate it? ›

You do this by subtracting the bid price from the ask price. For example, if you're trading GBP/USD at 1.3089/1.3091, the spread is calculated as 1.3091 – 1.3089, which is 0.0002 (2 pips). Spreads can either be wide (high) or tight (low) – the more pips derived from the above calculation, the wider the spread.

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What is the usual forex spread? ›

For major currency pairs, spreads of 0.0 to 0.1 pips are considered very competitive. No Commission Accounts: also known as Standard Accounts, spreads are generally wider, but you pay no flat-rate commission fees per trade. Low spreads for this account type would be between 0.6 and 0.8 pips for major fx pairs.

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What is the spread strategy in forex? ›

In Forex trading, 'spread' refers to the difference between the buying (ask) and selling (bid) prices of a currency pair. It represents the cost of executing a trade and serves as compensation to the broker. This difference is measured in pips and is a crucial factor influencing trading costs and potential profits.

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How to calculate forex? ›

Divide your current (home) currency by the exchange rate. For example, suppose that the USD/EUR exchange rate is 0.631 and you'd like to convert 100 USD into EUR. To do this, simply multiply the 100 by 0.631 and the result is the number of EUR that you'll receive: 63.10 EUR.

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How do you calculate the spread? ›

The calculation for a yield spread is essentially the same as for a bid-ask spread – simply subtract one yield from the other. For example, if the market rate for a five-year CD is 5% and the rate for a one-year CD is 2%, the spread is the difference between them, or 3%.

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How do you spread a forex bet? ›

Open your first forex spread bet

You'd buy the pair if you expected the base currency to rise in value against the quote currency. Or, you'd sell if you expected it to do the opposite. Lastly, set your stops and limits before opening a position.

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What spread is best for forex? ›

The best spread in Forex is 0.0 spread, which means that there is no difference between the buying price and selling price. Hence, if you buy a currency pair and sell it immediately, you are at no loss.

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Is spread good or bad in forex? ›

The higher the spread, the more income the Forex broker makes. The best spread on Forex pairs can be found with major currencies. Things such as USD, EUR, GBP, JPY etc. As long as the pair is constructed with these pairs, the spread is almost guaranteed to be extremely low.

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What does spread mean in trading? ›

The Bottom Line. In finance, a spread refers to the difference or gap between two prices, rates, or yields. One common use of "spread" is the bid-ask spread, which is the gap between the bid (from buyers) and the ask (from sellers) prices of a security or asset.

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How do you trade spreads? ›

In the spread, the trader typically pays a debit to buy an option at one expiration and sell one with a shorter expiration at the same strike. The debit calendar spread is designed to be a defined-risk spread.

What are the different types of spreads in forex? ›

Forex spreads are calculated using the BID (selling price) and ASK (buying price). The difference between these gives the spread. Types: Two main forex spreads are fixed and floating/variable.

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How do traders make money on spreads? ›

Imagine you want to trade USD/EUR. The USD price for every EUR might be $1.08, but the broker might quote $1.10 to buy and $1.07 to sell. The $0.03 difference is their profit, known as the spread.

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How do you calculate forex spread? ›

In forex trading, the spread is the difference between the bid (sell) price and the ask (buy) price of a currency pair. There are always two prices given in a currency pair, the bid and the ask price.