Spread is one of those words you will hear over and over again if you’re learning about Forex. 

But have you ever stopped to ask what it really means? Is it a good thing or a bad thing? Is it something you should worry about as a beginner? 

If you’ve been hearing people say things like

“The spread is too high.”

or

“Check the spread before trading.”

Don’t worry, you’re not alone. 

Many new traders feel confused at first. But guess what? Once you understand what spread means in Forex, it becomes super easy to work with. 

So, what’s all the talk about? Let’s look into it, so keep reading.

What Is Spread in Forex?

In Forex trading, spread simply means the difference between two prices: the buy price (ask) and the sell price (bid) of a currency pair.

Let’s say you walk into a shop to buy a new phone. The shop sells it to you for ₦100,000. But if you try to sell the same phone back to the shop, they’ll only give you ₦97,000. That ₦3,000 difference? That’s just like the spread in Forex.

In Forex, the broker gives you a price to buy and a different price to sell. The difference between those two prices is the spread, and that’s how the broker makes money.

Example of Spread in Forex

Let’s say you are trading EUR/USD.

• Buy (Ask) price = 1.1050
• Sell (Bid) price = 1.1047

Spread = 1.1050 – 1.1047 = 0.0003

That 0.0003 is called 3 pips. A pip is a small unit used to measure changes in price. So in this case, the spread is 3 pips.

Why Does Spread Matter in Forex?

When you enter a trade, you actually start at a small loss because of the spread. That’s why:

• Smaller spreads are better for you as a trader.
• Wider spreads can mean higher costs and less profit.

So, it’s important to always check the spread before opening a trade, especially during times when the market is moving fast.

What Affects the Spread?

Some things can make the spread bigger or smaller:

Currency Pair: Major pairs like EUR/USD usually have smaller spreads than exotic pairs like USD/ZAR.

Market Volatility: If the market is moving wildly, the spread can grow.

Time of Day: Spreads are usually smaller when the major markets (like London or New York) are open.

Liquidity: If many people are buying and selling, the spread is usually smaller.

Types of Spread

There are mainly two types of spreads in Forex:

1. Fixed Spread

Always stays the same, no matter what’s happening in the market.

Good for beginners because it’s predictable.

2. Variable (Floating) Spread

Changes depending on the market situation.

It can be very low during calm times, but it can go high during news events.

Does the Broker Take the Spread?

Yes, that’s how most brokers earn their money, through the spread. It’s like their own fee for giving you access to the Forex market. 

Some brokers may also charge extra commission, but most include their fee in the spread.

How to Find the Spread

Most Forex trading platforms will show you the bid and ask prices. Just subtract the bid from the ask and you’ll know the spread. 

Many platforms even show the spread automatically.

Conclusion

The spread may seem like a small thing, but it plays a big role in how much money you can make or lose, in Forex trading. 

Knowing how it works gives you more control over your trades and helps you avoid mistakes that beginners often make. 

So next time you hear someone say

“Watch the spread.”

You’ll know exactly what they mean and why it matters.