Two prices, not one

Every quote has a bid (the price you can sell at) and an ask (the price you can buy at). The ask is higher. The difference is the spread.

<title id="spread-title">Bid, ask and spread</title> The bid of 1.0850 is the selling price and the ask of 1.0851 is the buying price. The 1-pip gap between them is the spread. BID - you sell here 1.0850 ASK - you buy here 1.0851 Spread = 1 pip
Because you buy at the ask and sell at the bid, every trade starts slightly negative.

The spread is a cost

If you buy EUR/USD at 1.0851 and the bid is 1.0850, your trade shows a loss of 1 pip immediately. The price has to move in your favour by the spread before you break even.

On one standard lot, a 1-pip spread costs about $10. On a micro lot it costs about $0.10. Small per trade, but it adds up for frequent traders.

When spreads widen

Spreads are usually variable. They tend to widen:

  • around major news releases (for example US jobs data);
  • at the daily rollover, late at night in Tanzania;
  • on Monday mornings and public holidays when fewer banks are trading;
  • on minor and exotic pairs.

Spread or commission?

Some accounts charge only a spread. "Raw" or "ECN-style" accounts offer very tight spreads plus a commission per lot. To compare, add them together: a 0.2-pip spread plus a $7 round-turn commission per lot is roughly equivalent to a 0.9-pip spread.