Lesson 1 of 3. Free to read, no signup.
What a spread actually costs you
The number every broker advertises, and what it means in the currency you fund with.
- Level
- Beginner
- Read time
- 7 min
- Cost
- Free
What you will be able to do
- Convert a quoted spread into a cash cost on your position size
- Tell the difference between a headline spread and an average spread
- Work out when a commission account beats a zero-commission one
The spread is the gap, not the fee
Every quote has two prices. The bid is what you can sell at. The ask is what you can buy at. The gap between them is the spread, and you pay it the instant you open, because you enter at the worse side of the pair.
This is why a position shows a small loss the moment it opens. Nothing has gone wrong. You are looking at the spread.
Turning pips into money
A spread quoted in pips means nothing until you apply it to a position size. The same 0.9 pip spread costs a different amount on a micro lot than on a standard lot.
For most pairs quoted to four decimal places, one pip on one standard lot is about 10 units of the quote currency. Multiply the spread by that, and you have the cost of opening.
- Spread quoted
- 0.9 pips
- Value of 1 pip
- ~$10
- Cost to open
- ~$9
- Cost on a micro lot (0.01)
- ~$0.09
Headline spread is not average spread
Brokers advertise their best spread, usually on their most liquid pair, during the deepest part of the session. That is a real number and it is also the least representative one they have.
The figure that matters is the average across the hours you actually trade. Some brokers publish it. Where they do, we list it. Where they do not, treat the headline as a floor rather than an expectation.
When commission is cheaper
A raw spread account charges a commission per lot but quotes tighter. A standard account folds the cost into a wider spread and charges nothing extra. Neither is cheaper by default.
Add the commission to the raw spread and compare that total against the standard account spread. Trade often enough and the raw account usually wins. Trade rarely and the difference stops mattering.
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