What is the spread in trading?
The spread is the difference between the price at which you can buy an instrument and the price at which you can sell it at the same moment.
Every quote carries two numbers. The bid is what a buyer will pay you, so it is the price you sell at. The ask (sometimes called the offer) is what a seller wants from you, so it is the price you buy at. The ask is always the higher of the two, and the gap between them is the spread. It is how most brokers earn on a trade, whether or not they also charge a commission.
Why does every trade start as a loss?
Because you buy at the ask and sell at the bid, you cross the spread the instant you enter.
Suppose gold is quoted at 4,500.20 bid / 4,500.50 ask. You buy at the ask: 4,500.50. If you changed your mind one second later and closed, you would sell at the bid: 4,500.20. You are down 0.30 without the market having moved at all.
That gap is not an error or a hidden fee. It is the cost of entering, and it means the market must move in your favour by more than the spread before your position is genuinely in profit. On a 0.30 spread, gold has to rise 0.30 just to reach breakeven.
Here is the same idea across instruments, using round numbers:
| Instrument | Typical spread | Move needed just to break even |
|---|---|---|
| EUR/USD | ~0.6 pips | 0.6 pips |
| Gold (XAUUSD) | ~20-30 cents | 20-30 cents |
| Minor FX pair | 2-4 pips | 2-4 pips |
If the terms pips and lots are unfamiliar, our explainer on pips and lots covers how the units work.
What makes a spread widen?
Heavily traded instruments like EUR/USD carry thin spreads because many participants compete on both sides of the price. Thinly traded instruments, exotic currency pairs and small-cap shares carry much wider ones, simply because fewer people are willing to take the other side.
Spreads widen around major news, at market opens and closes, over the weekend gap, and during illiquid hours. The spread you tested on a calm European afternoon is not the spread you will pay ten seconds after an interest rate decision, when it can multiply several times over for a few moments. This is why stop losses sometimes trigger at prices that look wrong: the bid moved far more than the chart's last traded price suggested.
Some accounts quote a raw, very tight spread and charge a separate commission per lot. Others quote a wider all-in spread with no commission. Neither is automatically cheaper, and comparing only the advertised spread will mislead you. Add the commission to the spread and compare the total cost per round trip.
A broker passing prices through from liquidity providers will show variable spreads that reflect real market conditions. A broker quoting fixed spreads absorbs that variation and prices the risk in. Fixed is not free, it is smoothed.
Why does the spread matter more than traders expect?
The spread is trivial on any single trade and decisive across hundreds.
Consider a strategy taking 10 trades a day on EUR/USD at 0.6 pips. That is 6 pips of cost daily, roughly 120 pips a month, paid before a single decision proves right or wrong. A strategy holding positions for several days pays the same 0.6 pips perhaps twice a month and barely notices. Identical cost, completely different impact. This is precisely why scalping strategies live or die on execution cost while longer-horizon strategies can largely ignore it.
It also explains why very small accounts struggle. Costs are close to fixed in absolute terms, so they consume a far larger share of a small balance, which is one reason we set a realistic minimum for managed investing.
A broker can headline a very low number that only appears on one instrument, in perfect conditions, on an account type most clients do not use. What matters is the spread you actually receive while trading, including during volatility. Check your own filled prices rather than the marketing page.
How do you keep the spread from eating your results?
Avoid trading the first seconds after major news unless the strategy is specifically designed for it. Compare brokers on total cost per round trip rather than headline spread. Prefer liquid instruments when your strategy allows. And be honest about whether your trade frequency can carry the cost at all, because no amount of analysis rescues a strategy whose edge is smaller than its execution cost.
At TIC, execution cost is one of the factors accounted for in strategy design, and our performance is published on Myfxbook net of what the account actually paid, so the figures reflect real trading conditions rather than ideal ones. How to read a Myfxbook track record explains what else to check.
trading carries high risk and you may lose your capital. Past performance does not guarantee future results. Educational content only, not investment advice.
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