Spread is the term used to describe the price difference between the buy and sell prices displayed by the brokers on their platforms for the different assets traded. It is equally known as the bid and ask prices. When a trader places a buy order, the broker increases the current market price a little before offering it to the trader.

The same is applicable when he places a sell order, the broker in this case reduces the price to be different from the market price before offering it to the trader.

The extra costs added to the prices of the different pairs traded usually vary from each other. Hence, the major pairs usually have higher spreads than the minor pairs. Ask price: When you place a buy order for any pair in the market, the price at which the broker offers such pair to you is called the Ask price.

This price is usually higher than the current market price with a few pips difference. Bid price : Each time you place a sell order in the market, the price at which the broker executes your sell order is called the bid price. This price is usually lower than the market price based on the time the trader placed the order. Some traders today are not happy when the broker places an extra cost on the different pairs they are trading.

Such traders usually create an account with zero spread forex brokers , which helps them to determine their exact entry and exit price. A zero spread account is therefore one without an extra cost added to it. Here, the bid and ask prices for the Zero-spread accounts are usually the same with not much difference between them. However, brokers charge commission when the position is closed while using the zero-spread accounts.

It helps traders to determine their exact entry positions. Commissions are charged when the trader closes each position. Advertise Sitemap Privacy Policy Contact. The spread is the difference between bid and ask. It is the difference between the real price of an asset and the price with which the trader operates. It is right, in the majority of cases, and always when talking about spread, the trader does not operate with real prices.

It can appear as an uncomfortable truth, even shocking. In reality, it reveals a totally physiologic dynamic. The spread is in fact as legitimate source of profit of the broker, the price the trader has to pay to have guarantee that all their operations are really executed. The brokers are free to set the spreads as they please. In fact, the game of the acquisition of new clients is also played with the spreads.

However, the margin of discretion is not infinite, more and more often certain calculation protocols are executed. Rather than a precise calculation, we signal protocols and factors which impact the spreads more or less the same way.

However, there is a constant: the unit of measurement, the pip. Moreover, in the vast majority of cases the broker sets a spread for each of the assets offered. Anyway, here are the two factors that mostly affect the spread. The higher the liquidity, the lower is the spread.

Therefore, the most liquid assets, such as euro-dollar, have the lowest spread, generally of the order of magnitude of some tenth of pip. The reason is simple: if the asset is liquid it is easier to place orders in the real market, therefore the effort for the broker is minimum. The higher the volatility, the higher is the spread. In this case there is a relationship of inverse proportion. Also in this case the reason is easy to see: if an asset is volatile, the risk that the ratio between bid and ask disadvantages the broker is higher.

When talking about spreads, we should distinguish between fixed and variable. Some brokers opt for fixed spreads, others for the variable ones. It really depends on the case, neither of the alternatives prevails on the other.

However, which option favours the trader? In reality, to answer this question we need to look at minimum spread set by the broker. If it is high, the fixed spread is more convenient to the trader. In fact, if it already starts from a high basis, even variations of increase by some pips can cause serious damage.

In a scenario now saturated with brokers, it is Key To Markets to offer the most favourable setup to the traders. In fact, it proposes very low and variable spreads. We have already mentioned that the spreads are decided by the brokers with a certain margin of discretion.

This relative freedom can cause some disorientation to the trader. Substantially, they might not understand, at least not at first, when a spread is high or low.

Home Newsroom What is a spread in forex: definition and examples. When it comes to any kind of trading, you have to pay a broker some form of commission to execute your order. But what exactly is a spread? How does it work and what does a good spread look like? What is spread in forex What is a good spread in forex Forex spread. You can expect there to be some cost for trading all investments - a commission charged by the broker to execute your order.

This also applies to forex trading , in the vast electronic market for currency pairs where you can invest via derivative instruments such as CFDs. In forex, the spread represents the cost of the trade, and so the commission you have to pay your broker to execute the trade. Every trader needs to carefully evaluate the spread in forex to choose a trading platform that offers affordable costs to trade currency exchanges sustainably. In forex trading, every order has two costs: the first is the cost of the asset you are trading through, for example the CFDs on the currency pair you are interested in; the second refers to the cost of placing the trade.

It is usually a very low cost , often lower than commissions charged on many other trades including stock or bond purchases. Specifically, the spread in forex is the difference between the buying and selling price of a currency pair. The spread is indicated in pips , the smallest price movement that can be measured in forex trading. Usually, the pip appears to the fourth decimal place. FinecoBank's trading solutions , let you invest in forex at competitive costs, with a low spread starting at 0.

If a spread is low , it means that volatility is low and liquidity high. On the other hand, if a spread is high , it means that volatility is high and liquidity low. They demand a higher spread if the opposite applies. In practical terms a high forex spread indicates that volatility is high and market demand low for the relevant currency cross, making it an expensive high-risk investment for you.

A high spread also indicates that the broker charges high commissions, so you might want to consider whether it is actually worthwhile to trade forex with them or to search for a more profitable solution. In forex trading, a spread can be fixed or floating. A floating spread will change every time the ask and bid prices of currency pairs change. Calculating the spread in forex is very simple, all you have to do is deduct the sell price from the buy price and obtain the spread value expressed in pips, or decimals.

The lower the spread, the more accessible the trade. Higher spreads mean higher costs and higher risks, so be careful with these currency crosses because they require more experience. Information or views expressed should not be taken as any kind of recommendation or forecast.

All trading involves risks, losses can exceed deposits. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Fineco Newsroom is a compilation of articles written by our editorial partners.

Fineco is not responsible for an article's content and its accuracy nor for the information contained in the online articles linked. These articles are provided for information only, these are not intended to be personal recommendations on financial instruments, products or financial strategies. Some of the articles you will find on the Newsroom feature data and information from past years. As per the very nature of the content we feature in this section of our website, some pieces of information provided might be not up to date and reliable anymore.

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The size of the spread can be influenced by different factors, such as which currency pair you are trading and how volatile it is, the size of your trade and which provider you are using. For a simple analogy, consider that when you purchase a brand-new car, you pay the market price for it. To avoid ambiguities, it is important to make a clarification. Personal Institutional Group. Here, the bid and ask prices for the Zero-spread accounts are usually the same with not much difference between them. The significant fluctuation in wheat prices in the futures market occurs from January to October. Designed and Powered by Paul Neumyer Consulting.

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