How the two prices work
The broker always shows two prices: the bid (lower) and the ask (higher). A buy trade enters at the ask and exits at the bid, so every trade begins with a small loss equal to the spread that price must overcome to profit. See also the pip to understand how the spread is measured.
What the spread costs you in dollars
Most explanations stop at the definition, while the practical question is: how much does this take from your account? The formula:
Spread cost = spread in pips × pip value × number of lots
Pip value for a standard lot on a dollar-quoted pair is $10, for a mini lot (0.1) one dollar, and for a micro lot (0.01) ten cents. The table shows the real cost of opening a single trade:
| Spread | 0.01 lot | 0.1 lot | 1 lot |
|---|---|---|---|
| 0.5 pip | $0.05 | $0.50 | $5 |
| 1.0 pip | $0.10 | $1 | $10 |
| 2.0 pips | $0.20 | $2 | $20 |
| 3.0 pips | $0.30 | $3 | $30 |
To calculate pip value for any pair or for gold, use the pip value calculator.
Why this matters more than it looks
A single figure looks small, but the spread is a recurring cost paid on every trade. A trader opening ten standard-lot trades a day at a 1.5-pip spread pays $150 daily in entry cost alone — before any market loss. Across a 22-day working month that is $3,300 that winning trades must cover before the account starts growing.
This explains why scalping is more spread-sensitive than any other style: if your target is 5 pips and your spread is 1.5, you hand 30% of your target to the broker on every trade. A swing trader targeting 200 pips gives up under 1% of the target to the same 1.5 pips. A spread is not high or low in itself — only relative to the size of your target.
Fixed vs variable, and when it widens
| Type | Behaviour | Suits | Watch for |
|---|---|---|---|
| Fixed | Does not change with the market | Those wanting a known cost upfront | Often wider during quiet hours |
| Variable | Tightens and widens with liquidity | Those trading peak hours | Can widen suddenly on news |
A variable spread widens in predictable situations: the moment high-impact data is released, at the market open after the weekend, during the thin hours between the New York close and the Tokyo open, and in exotic pairs throughout. Choosing the right trading session lowers this cost without changing your strategy at all.
Common mistakes about the spread
- Choosing a broker on spread alone. An advertised spread may come with a commission or worse execution; real cost is spread + commission + slippage combined.
- Comparing spreads at different times. A fair comparison means the same pair in the same minute.
- Placing a stop-loss too tight without accounting for the spread, so it is hit by a momentary widening rather than a real price move.
- Ignoring the spread when calculating risk/reward. Compute it after cost with the risk/reward calculator.
- Trading the instant of a news release, where the widest spread meets the highest slippage.