Spreads



The spread is the difference between the buy (also called bid) price and the sell (also called ask) price. Two prices are given for a currency pair. The spread represents the difference between what the market maker gives to buy from a trader, and what the market maker takes to sell to a trader.

If a trader buys any currency and immediately sells it – and no change in the exchange rate has happened – the trader will lose money. The reason for this is that the bid price is always lower than the ask price.

For example, the EUR/USD bid/ask currency rates at your bank may be 1.2015/1.3015. This represents a spread of 1000 pips. This spread is very high compared to the bid/ask currency rates for online Forex investors, such as 1.2015/1.2020 – a spread of 5 pips.

In general, smaller spreads are better for Forex investors because a smaller movement in exchange rates lets them profit from a trade more easily.