The spread in forex is the difference between the price you can buy at and the price you can sell at, quoted at the same instant. You buy at the higher ask and sell at the lower bid, so every position opens slightly negative. That gap is the dealer fee, and you pay it on every single trade.
Almost every new trader understands that sentence and then underestimates it by an order of magnitude. The spread is small enough per trade to feel like a rounding error and frequent enough to become the largest single line of cost in an active account. It is charged whether you win or lose, whether you hold for eight seconds or eight hours, and it never appears on a statement as a fee.
How the spread is quoted
A forex quote always carries two prices. Suppose EUR/USD shows 1.08432 / 1.08444. The first number is the bid — what you receive if you sell. The second is the ask — what you pay if you buy. The gap between them is 0.00012, which on a five-decimal quote is 1.2 pips.
The fifth decimal place is a pipette, or a tenth of a pip, which is why brokers advertise spreads like "0.6" rather than in whole numbers. If the pip itself is unfamiliar, start with what a pip is and how to calculate pip value, because everything below is denominated in it.
Translating pips into money depends only on position size. On a standard lot of 100,000 units of EUR/USD, one pip is worth about $10, so a 1.2 pip spread costs roughly $12 per round turn. On a mini lot of 10,000 units it is $1.20, and on a micro lot of 1,000 units it is 12 cents.
What the spread actually costs over a year
The per-trade number is not the number that matters. Frequency is. A trader taking five positions a day across roughly 250 trading days pays the spread about 1,250 times a year.
| Position size | 1.2 pip spread, per round turn | Cost at 1,250 trades a year |
|---|---|---|
| Micro lot (1,000 units) | $0.12 | $150 |
| Mini lot (10,000 units) | $1.20 | $1,500 |
| Standard lot (100,000 units) | $12.00 | $15,000 |
Sit with the middle row for a second. A trader running mini lots on a $10,000 account is handing over roughly 15% of that account in spread every year before a single losing trade is counted. That is the hurdle the strategy has to clear just to break even, and it is a large part of why a system can test beautifully on mid-price data and still bleed in live conditions.
It also sits behind a pattern regulators keep finding. In the analysis supporting its 2018 product intervention on contracts for difference, the European Securities and Markets Authority reported that 74–89% of retail accounts lose money, with average losses per client ranging from €1,600 to €29,000 (ESMA, product intervention measures on CFDs and binary options). Costs are not the whole of that story, but a fixed charge levied on every trade in a game most people already play too often is a meaningful part of it.
Why spreads widen
A spread is a market maker's price for standing between two sides of a trade. It widens when that job gets harder, which happens in three recognisable situations.
- Thin hours. Between the New York close and the Tokyo open, fewer desks are quoting. Spreads on the majors can double or worse. The forex sessions and their overlap map these hours precisely.
- Scheduled news. In the seconds around a data release nobody knows the right price, so quotes pull apart until the new level is discovered. That mechanism is covered in how news events move forex pairs.
- Exotic pairs. USD/TRY or USD/ZAR carry structurally wider spreads at every hour of the day, simply because far fewer participants trade them.
Volume is the common thread. The Bank for International Settlements measured global FX turnover at $9.6 trillion per day in April 2025, of which spot trading was about $3 trillion, or 31% of the total (BIS, OTC foreign exchange turnover in April 2025). That enormous figure is what keeps major-pair spreads tight — but it is not spread evenly across the clock or across the pair list, and your spread reflects the slice you are actually trading in.
Fixed spreads, variable spreads and commission accounts
Retail brokers package the same cost three ways. None of them is free; they differ in where the charge sits and how predictable it is.
| Account type | How you pay | Suits | Watch for |
|---|---|---|---|
| Fixed spread | A constant quoted spread, wider than the raw market | Traders who want predictable cost | Widening or requotes anyway in fast markets |
| Variable / all-in spread | The market spread plus a markup | Smaller positions, lower frequency | Advertised "average" spreads that are not your hour |
| Raw spread + commission | Near-interbank spread, separate per-lot fee | Larger size, higher frequency | Comparing spread alone and ignoring the commission |
The only comparison worth making is total cost per round turn on the size you actually trade. A raw account quoting 0.1 pips with a $7 per-lot round-turn commission costs about $8 on a standard lot — meaningfully cheaper than a 1.2 pip all-in spread at $12. Flip to micro lots and the ranking can invert, because commission scales with lots while the spread scales with the position. Work it out with your own numbers rather than the headline. The wider question of who to trade through sits in how to choose a broker for day trading.
Your broker is usually the counterparty
In retail forex there is no central exchange and no consolidated tape. You are typically dealing with a firm that takes the other side of your trade, which is why the regulatory framework leans so heavily on that firm's solvency. In the United States, the Commodity Futures Trading Commission requires futures commission merchants and retail foreign exchange dealers to hold net capital of $20 million plus 5% of retail forex liabilities above $10 million (CFTC, Foreign Currency Trading).
The practical implication is simple: the spread you see is a price your counterparty set, not a fact of nature. Two brokers quoting the same pair at the same second will not agree. That is worth thirty seconds of comparison before you open an account, and it is worth re-checking at the hour you actually trade rather than at the hour the marketing page was screenshotted.
Why this matters more the shorter your timeframe
Cost is only meaningful relative to the size of the move you are trying to capture. A 1.2 pip spread against a 10 pip scalp target is 12% of the trade. The same 1.2 pips against a 200 pip swing target is 0.6%.
That single ratio explains most of the difference between the two styles in practice. Scalping is not harder because the patterns are worse; it is harder because you pay the toll twenty times for a distance a swing trader covers paying it once. If you are weighing the two, scalping vs day trading lays out the rest of the trade-off, and the arithmetic above belongs in that decision.
Frequently Asked Questions
What is a good spread in forex?
On EUR/USD during the London and New York hours, a raw spread of well under a pip is common, and an all-in retail spread of roughly one pip is unremarkable. The number matters less than the comparison: quote the same pair at the same hour across two or three brokers and you will see the real range. Beware of headline spreads advertised as an average or a best case, because the figure that affects you is the one quoted at the hour you actually trade.
Why does the forex spread widen?
Because fewer market makers are quoting, or because the ones quoting have become less certain of the right price. The two situations that produce this are thin hours, such as the gap between the New York close and the Tokyo open, and moments of sudden uncertainty, such as a scheduled data release or an unexpected headline. Exotic pairs carry structurally wider spreads at all hours because far fewer participants trade them.
Is a zero spread forex account really zero cost?
No. A zero or raw spread account moves the cost into a separate commission rather than removing it. Whether that is cheaper depends on your size and frequency: commission is usually charged per lot, so a raw account tends to favour larger positions and an all-in spread account can be cheaper on very small ones. The only honest comparison is total cost per round turn, spread plus commission, on the size you actually trade.
Does the spread count as a loss?
Yes, in the practical sense that every position opens showing a small negative. You buy at the ask and you can only sell at the bid, so price has to travel the width of the spread before you break even. This is why the spread hurts a scalper far more than a swing trader. A one pip cost against a ten pip target is ten percent of the move, while the same cost against a two hundred pip target is a rounding error.
Bottom line
The spread is the entry fee on every forex trade: quoted in pips, paid to your counterparty, invisible on your statement. Per trade it is trivial; at 1,250 trades a year on mini lots it is roughly $1,500. Compare total cost per round turn rather than headline spreads, trade the hours where liquidity is deepest, and be honest about whether your target is large enough to justify the toll. The rest of the market mechanics sit in the forex trading guide, and the other cost that accrues quietly is covered in what swap and overnight financing are.