Spread
The difference between the bid and ask price. A key trading cost in forex and CFD markets.
Definition
The spread is the difference between the bid (sell) price and the ask (buy) price of a trading instrument. It represents a key cost of trading and is how brokers often make money. Tighter spreads mean lower trading costs.
How It Works
- Bid: 1.1000 / Ask: 1.1002 = 2 pip spread
- You buy at ask, sell at bid
- Spread is an immediate cost when entering a trade
- Variable spreads widen during volatility
Types of Spread
Fixed Spread
Stays constant regardless of market conditions
Variable Spread
Fluctuates based on liquidity and volatility
Raw Spread
Interbank spread with separate commission
Trading Tips
1
Compare spreads across brokers
2
Spreads widen during news events and low liquidity
3
Major pairs have tighter spreads than exotics
Related Terms
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