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What is a Broker Spread? A Beginner’s Guide to Forex Costs

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Nick Goold

In forex trading, one of the key concepts to understand is the broker spread. The spread is a built-in cost on every trade and has a direct impact on your profits. This beginner’s guide explains what spreads are, why they matter, and how to manage them across different markets and trading styles.

What is a Broker Spread?

A broker spread is the difference between the bid price (the price you sell at) and the ask price (the price you buy at) of a currency pair or other financial instrument.

For example:

  • If EUR/USD is quoted at 1.0500/1.0502, the spread is 2 pips (0.0002).
  • If USD/JPY is quoted at 145.00/145.01, the spread is 1 pip (0.01).


In both cases, the moment you open a trade, you pay this cost. The price must move in your favor by at least the spread amount before you can break even.

Types of Spreads

  • Fixed Spreads: Stay the same regardless of market conditions. Predictable, but usually wider than variable spreads.
  • Variable (Floating) Spreads: Change depending on liquidity and volatility. Tighter during active sessions, but widen during news events or low liquidity.


How Spreads Differ Across Markets

Spreads are not the same for every instrument:

  • Forex Majors (for example EUR/USD, USD/JPY): Tightest spreads, often under 1 pip with ECN brokers.
  • Forex Minors and Exotics: Wider spreads (1–3 pips for minors, 10+ pips for exotics) due to lower liquidity.


FX Markets

Why Broker Spreads Matter

Every trade begins with a small loss equal to the spread, which means the price must move in your favor before you can break even. For active traders, these costs add up quickly, and even a difference of just one pip can make a big impact over many trades.

Liquidity and Volatility

Two of the most important factors that influence spreads are liquidity and volatility:

  • Liquidity: This refers to how easily an asset can be bought or sold without moving its price. Highly traded markets, like EUR/USD or USD/JPY, usually have many buyers and sellers. This strong liquidity leads to tighter spreads.
  • Volatility: This is the degree of price movement over time. When prices swing sharply, brokers face more risk. To manage this, spreads typically widen during volatile conditions — such as news events or sudden market shocks.

How Spreads Change Throughout the Day

Spreads are not fixed. They fluctuate depending on market conditions:

  • Market Sessions: Spreads are usually tighter during major overlaps (London–New York), when liquidity is highest. They tend to widen during quieter Asian hours, and before Asia opens spreads can widen further due to very low liquidity.
  • News Events: Major announcements like U.S. Non-Farm Payrolls or central bank decisions can cause spreads to spike dramatically.
  • Market Volatility: During unexpected events (e.g., geopolitical tensions, economic shocks), spreads widen as brokers adjust for risk.


Understanding these patterns helps traders plan entries and manage risk.

Spread Importance for Different Traders

  • Scalpers: Extremely sensitive to spreads, as they target only a few pips per trade. They need the tightest spreads possible.
  • Day Traders: Still care about spreads but can tolerate slightly wider ones since they target larger intraday moves.
  • Swing Traders: Less affected because their targets are much bigger, but spreads still matter for risk/reward ratios.
  • Long-Term Traders: Spreads are a smaller concern, but can still add up in exotic or less liquid markets.


Trader type FX spread costs

Other Factors That Affect Spreads

  • Broker Type: Market Makers: Usually fixed spreads, but wider overall. ECN/STP Brokers: Raw spreads + commission, often cheaper for active traders.
  • Account Type: VIP or professional accounts often get tighter spreads.
  • Trading Volume: Higher volume with a broker may unlock better spread conditions.

How to Minimize Spread Costs

  • Choose the Right Broker: Look for competitive spreads, but balance with execution speed, regulation, and service.
  • Focus on Liquid Markets: FX majors and popular indices usually have the lowest costs.
  • Try to Avoid Trading Between NY Close and Asia Open: Liquidity is thin, and spreads often widen during this time.
  • Avoid Major News Releases: Unless your strategy is built for volatility.


Understanding broker spreads is essential for every trader. Spreads are an unavoidable cost, but you can manage them with the right broker, timing, and strategy.

  • Scalpers must prioritize tight spreads.
  • Day traders need stable spreads during their active hours.
  • Swing traders should balance spread costs with long-term targets.


By paying attention to liquidity, volatility, and trading conditions, you’ll improve your trade efficiency, reduce costs, and set yourself up for more consistent profitability when trading forex.

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