What Is Spread in Forex? How to Pay Less

Key Takeaways

• Spread is the cost of every trade, 1 pip on EUR/USD = $10 per standard lot
• Raw spread accounts (0.0 pips + commission) are almost always cheaper than standard
• Trade during London/NY overlap for tightest spreads
• IC Markets and Pepperstone consistently offer the lowest total trading costs

What Is the Spread?

The spread is the difference between the buy price (ask) and sell price (bid) of a currency pair. It's measured in pips, the smallest unit of price movement. For example, if EUR/USD has a bid of 1.08500 and an ask of 1.08510, the spread is 1.0 pips. Every time you open a trade, you start slightly in the negative by the spread amount. On a standard lot (100,000 units), a 1.0 pip spread costs $10. This is the primary way your broker makes money, and it's the main trading cost you need to manage.

Raw Spreads vs Standard Spreads

Brokers offer two main account types: Standard accounts. No commission, but wider spreads (0.6-1.5 pips on EUR/USD). The broker's fee is built into the spread. Raw/ECN accounts, Razor-thin spreads (0.0-0.2 pips) plus a fixed commission ($3-7 per lot round turn). Total cost on raw accounts is almost always lower. Real comparison on EUR/USD, 1 standard lot: Standard account: 1.0 pip spread = $10 total cost. Raw account: 0.1 pip spread + $7 commission = $8 total cost. That's a $2 saving per trade. Over 100 trades per month, you save $200. Both IC Markets and Pepperstone offer raw spread accounts starting from 0.0 pips.

What Affects Spread Size?

Spreads aren't fixed, they fluctuate based on: Liquidity. Major pairs (EUR/USD, GBP/USD) have the tightest spreads because they're the most traded. Exotic pairs (USD/TRY, USD/ZAR) have wide spreads due to low liquidity. Time of day. Spreads are tightest during the London/New York overlap (8AM-12PM EST) when volume is highest. Asian session spreads are wider. News events. Spreads spike during high-impact news (NFP, interest rate decisions). A normally 0.5-pip spread can blow out to 5-20 pips during major news. Broker type. ECN/STP brokers pass through interbank spreads. Market makers set their own spreads (usually wider).

How Spread Impacts Different Trading Styles

Scalpers, Spread is critical. If you target 5-10 pips per trade and the spread is 1.5 pips, you're giving up 15-30% of your profit. Scalpers need raw spread accounts. Day traders. Spread matters but less than scalpers. A 1-pip difference on 5-10 daily trades adds up over a month. Swing traders, Spread impact is minimal. If you target 100+ pips per trade, a 1-pip spread is less than 1% of your profit. Position traders, Spread is almost irrelevant. Swap fees matter more for long-term holds. Rule of thumb: the shorter your average trade duration, the more spread matters to your profitability.

How to Minimize Spread Costs

1. Use a raw spread account. If you trade more than a few times per week, the savings add up fast. 2. Trade during peak hours. London and New York sessions offer the tightest spreads. 3. Stick to major pairs. EUR/USD, GBP/USD, USD/JPY consistently have the lowest spreads. 4. Avoid trading during news. Spread spikes during high-impact events can eat your profits. 5. Compare brokers. Even among raw spread brokers, there are differences. IC Markets and Pepperstone consistently rank lowest. 6. Consider commission structure, $7/lot round turn is standard. Some brokers charge less but widen spreads to compensate.

Frequently Asked Questions

What's a good spread for EUR/USD?

On a raw account, average EUR/USD spreads of 0.0-0.2 pips are excellent. On a standard account, 0.6-1.0 pips is good. Anything above 1.5 pips is high.

Do I pay spread on every trade?

Yes. The spread is charged on every trade you open. It's automatically deducted, you'll see your trade start slightly negative by the spread amount.

Is zero spread really free?

No. 'Zero spread' accounts charge a commission instead. The total cost (spread + commission) is what matters. Zero spread + $7 commission is still a cost.