Bid-Offer Spread
The difference between the highest price a buyer will pay (bid) and the lowest price a seller will accept (offer/ask).
The bid-offer spread is the gap between the sell and buy price, and the immediate cost of entering a trade. Tighter spreads mean higher liquidity and lower cost; spreads widen in volatility.
The bid-offer spread (also called bid-ask spread) is the gap between the price at which you can sell (bid) and the price at which you can buy (ask/offer). It represents the immediate cost of entering a trade and is the primary revenue source for market makers. Tighter spreads indicate higher liquidity and lower trading costs. Spreads widen during low liquidity periods, high volatility, and major news events.
How It Works
- Bid = highest price a buyer will pay. Ask/offer = lowest price a seller will accept.
- The spread is measured in pips. EUR/USD might quote 1.0850/1.0852, a 2-pip spread.
- You always buy at the ask and sell at the bid, so you start every trade at a small loss equal to the spread
- Spreads are tightest on major pairs and widest on exotic pairs
Trading Tips
Factor the spread into every trade plan. On small targets, a wide spread can eat most of your profit.
Trade during high-liquidity sessions (London-New York overlap) for the tightest spreads
Compare spreads across brokers. Over hundreds of trades, even 0.5 pips difference adds up significantly.
Bid-Offer Spread Example
Say GBP/JPY quotes 190.10 / 190.18. That 8-pip bid-offer spread means every round trip starts $80 underwater per lot. The same trade on EUR/USD at 1 pip costs $10. The pair chooses your costs before you choose the direction.
How Traders Use Bid-Offer Spread
Compare bid-offer spreads before choosing pairs, not after choosing direction. Wide-spread pairs demand wider targets and smaller size. If the spread exceeds your typical profit target, find another pair.
Related Terms
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