| Updated: September 15, 2025- Jump to:
- Forex Spread Explained
- How Spreads are Quoted
- Calculating Spreads
- Fixed and Floating
- Inverted Spread
- Spread Indicators
- Price Movements
- How Important Are Spreads
- Factors that Influence Spreads
- Trading Volume
- Periods of Economic
- Large Banks and Dealers
- The Liquidity and Volatility
- How to Reduce Spreads
- Choose Brokers
- High-Liquidity Pairs
- Refrain from Trading
- Pick the Right Hours
- Beyond Spreads
- Spreads and Currency
- Conclusion
The spread is a key element of any financial market. If you have traded forex before, you have probably noticed that there are two prices: an ask price, used when you buy the asset, and a bid price, used when you sell it. The small difference between these prices is called the spread. Below you can find our top list of forex brokers offering low spreads for trading.
The spread is usually very small and, in essence, represents the commission the broker receives for every trade opened. If you are new to the forex market, you may underestimate the importance of the spread, but it is one of the most important things you should check when choosing your forex broker.
Most trading systems and strategies are highly dependent on the spread offered by the broker. A spread that is too high can often render a system useless. If your strategy requires you to open many positions in a short period, it is crucial to find a forex broker that offers low spreads. This is why high-frequency traders always pay close attention to the spread each broker offers.
The forex spread explained
Now, let’s delve deeper into trading spreads and how they work. All markets have spreads, and forex is no exception. Simply put, the spread represents the difference between the price at which an asset (in this case, a currency pair) is bought and sold.
Currencies are always quoted with two prices: a bid price and an ask price. The price at which a trader buys the base currency of the pair is the bid price. The ask price denotes the price at which the base currency is sold. For clarification, the base currency sits on the pair’s left side, while the counter currency is on the right.
This pairing indicates how many units of the counter currency you can purchase with a single unit of the base one. The buy prices will always be lower than the sell prices. The actual underlying value of the currency pair lies somewhere in between. Trading the majority of forex pairs is commission-free. Brokerages apply the spreads to cover the costs associated with the execution of trades; this also helps them reduce their risk exposure.
The size of the spread depends on several factors, including which currency pair you trade and how volatile the respective market is. The size of the positions you open and the brokerage you trade with also matter. Some online brokers offer more competitive spreads than others.
How spreads for the forex markets are quoted
The spread is measured in pips, an abbreviation of ‘percentage in point’. A pip represents the smallest possible movement in the price of a currency pair. It is normally the last digit in the price quote, in the final decimal place.
The majority of currency pairs are quoted with four decimal places. An exception is made for pairs that involve the JPY, where there are usually only two digits after the decimal point. For example, a single pip would be expressed as 0.0001 for a major pair such as EUR/GBP, and as 0.01 for GBP/JPY.
Calculating the forex spreads
Let us use an example to see how traders can calculate the cost of a given position. Assume you are interested in opening an order for the EUR/USD and your broker of choice quotes it at 1.18118/1.18127.
Because the spread reflects the difference between the bid and ask prices of the pair, it would be equal to 1.18127 – 1.18118 = 0.00009 in this case. Here, we have a discrepancy of 0.00009, which corresponds to 0.9 pips. The trader pays this built-in cost as soon as they open a position in EUR/USD.
All major online brokers include price charts on their websites so that traders can compare the average spreads for different currency pairs. Now that we have established the spread for EUR/USD is 0.9 pips, we can determine how much opening such a position would cost.
Because currencies are traded in lots, we can calculate the monetary cost by multiplying the spread by the pip value for a 10k lot. Using our example, the overall cost of opening a position for a 10k lot would be 0.00009 × 10,000 = $0.9.
The cost obviously fluctuates with the lot size. It is higher for one standard lot, which consists of 100k units of the respective currency. Accordingly, the trader’s expense rises to 0.00009 × 100,000 = $9 when they purchase a standard lot of EUR/USD with a spread of 0.9 pips.
Note that if your trading account is denominated in another currency, you must convert the cost to USD. Another point to consider is that some brokerages reduce spreads during certain trading hours. The aim is to encourage customers to trade during periods of higher demand and create more liquidity.
| Metric | Value |
|---|---|
| Standard Lot | $0.00 |
| Mini Lot | $0.00 |
| Micro Lot | $0.00 |
| Pip Value | $0.00 |
Fixed and floating forex spreads
Online brokerages normally offer two types of spread – a floating (variable) spread and a fixed spread. Fixed spreads do not change over time, whereas floating spreads are highly dynamic. It is up to you to decide whether your strategy will be more successful with a fixed or a floating spread.
Each type has its own advantages and disadvantages. One benefit of fixed spreads is that they enable traders to determine the cost of their positions in advance. They remain stable regardless of the volatility or interbank liquidity of the underlying asset.
This allows investors to devise an adequate short-term or long-term strategy. Fixed spreads ensure higher levels of pricing transparency and are considered more suitable in volatile market conditions. The main disadvantage is that fixed spreads are usually higher than variable ones.
By contrast, floating spreads are constantly changing but are generally tighter than fixed spreads. Fluctuations in ask and bid prices stem from changes in market liquidity, volatility, trading activity, and supply and demand.
These spreads may widen by several dozen pips during news time. Because of this, floating spreads are considered more suitable for those who trade long-term positions that are not influenced by news events. The main drawback of variable spreads is that they can expand dramatically at certain times and cost the trader more than fixed spreads.
Inverted spread
By now it should be apparent that traders enter their positions at a nominal loss because of the built-in spread. This is always the case unless an investor is trading with an ECN brokerage that gives them direct access to the currency markets. Such brokers employ electronic communication networks (ECNs) and normally ensure very high execution speeds.
With ECN brokers, it is sometimes possible for spreads to invert or altogether cease to exist for a couple of seconds. This phenomenon is known as an ‘inverted spread’.
However, this abnormality is rarely observed, and most experienced traders consider it undesirable because it might indicate that investors’ confidence in the short-term markets has dramatically plunged.
Spread indicators
Seasoned investors find it helpful to have the spread size at a glance. This is achievable with the help of so-called spread indicators, available for download in trading platforms like MetaTrader 4. Novice investors often skip this step, which ultimately results in higher trading costs for them.
Spread indicators measure the discrepancy between the bid and ask prices of instruments such as currency pairs and securities. They normally appear as curves on charts that indicate the direction in which spreads are moving, helping with visualisation because you always have the spread in view.
You can access spread indicators by downloading the MetaTrader Supreme Edition plug-in at no cost. This feature can be particularly useful for short-term traders who open positions frequently. Scalpers also use spread indicators to trade more cost-effectively.
Price movements and margin calls
One thing to keep in mind, especially when trading with leverage, is that your broker might send you a margin call when the spread widens dramatically. Margin is among the most crucial concepts a trader must grasp, as it denotes the amount of money they must put up to open a trading position.
Whenever a position goes into negative territory, the account’s margin level can plummet. The money in the live account is no longer sufficient (i.e. less than 100%) to cover the cost of the position and the brokerage’s margin requirements.
The broker will inform the trader, either via email or push notification, that they need to fund their account to keep the position(s) open. This is known as a margin call. If the trader fails to do so, their positions will be liquidated immediately.
Receiving margin calls is highly undesirable and can have dire consequences. They can turn a bad investment decision into a much bigger issue, such as incurring debt. There are various ways to prevent margin calls, including tracking your margin regularly, setting stop losses, and maintaining an adequate account balance.
How important are spreads from the perspective of brokers
If you think foreign-exchange brokerages generate profits solely by charging commissions and building spreads into position prices, you are mistaken. Many market makers actually take the opposite side of their customers’ trades. Most retail customers tend to lose money, which goes straight into the brokerages’ pockets.
Imagine a brokerage whose sole occupation is to quote position prices once you sign up and fund your live account. If most of its customers make poor trading decisions and lose money without ever withdrawing, the broker will generate significantly more profit by keeping the deposited funds than it would from fees and spreads.
Of course, larger spreads and higher commissions translate into more profit for brokerages. However, spreads are generally far more important to traders than they are to brokers. They are basically the price you must pay to do business with a given broker. The more often you open positions, the greater the importance of the spread and its impact on your long-term profitability.
Factors that influence the forex spreads
It is logical that with variable spreads the difference between ask and bid prices will fluctuate from one moment to the next. What is more difficult to grasp is why these shifts occur in the first place.
The width of the spread is influenced by several factors, including trading volume, the volatility of different currencies, and the economic and geopolitical climate. Let’s have a closer look at each.
Trading volume
By and large, the gap between bid and ask prices is affected by the trading volume of different currency pairs. Greater trading volumes indicate higher liquidity, which, in turn, results in lower bid and ask spreads.
Heavy simultaneous buying and selling leads to a concurrent upsurge in bids and a downturn in offers, which tightens the bid/ask spread.
These circumstances explain why spreads remain so tight in the high-volume currency market compared with other financial markets, despite the fact that foreign-exchange brokers normally do not charge additional fees and commissions to compensate for the risk they face as market makers.
Periods of economic or political uncertainty
The current geopolitical and economic landscape can also impact bid and ask prices. Whenever a nation goes through a period of high inflation or other forms of economic uncertainty, or finds itself amid a turbulent political climate, its currency is normally associated with greater risk.
Such countries typically lack an adequate approach to monetary policy and suffer from relatively high inflation. In turn, this causes the spread to widen because brokers associate investing in such currencies with higher risk; they will only sell at a premium.
Those who seek to buy the currency would only do so at a discount to offset the high risk. As a result, the gap between bid and ask prices widens and trading volumes fall because fewer investors are active in the market.
Large banks and dealers
Apart from investors who buy and sell currencies to capitalise on price swings, some financial institutions, mostly large banks, also act as dealers in the foreign-exchange markets. Such dealers generate profit mostly from the spread without holding a given currency for long.
The greater the number of such dealers, the lower the spreads tend to be. When competition for investors’ funds is fierce, brokers naturally compress margins and lower spreads.
The liquidity and volatility of the currencies
Unstable central banks and inadequate monetary policies also cause changes in currency values. When traders are scared off by uncertainty and withdraw from the markets, brokers naturally widen spreads to compensate for the drop in liquidity.
Volatility also influences the gap between bid and ask prices. Brokers tend to widen spreads further whenever the market becomes more volatile because their risk increases.
Spreads are particularly susceptible to growth when market makers anticipate unforeseen and abrupt price movements. This is why wild market fluctuations are usually observed around the time of important economic data and news releases.
How to reduce the forex spreads
You can never become a successful investor if you do not learn how to trade in a cost-effective manner. Experienced traders inevitably look for value before they open any position. They always consider how much a trade will cost and only do business with brokerages that offer the sharpest spreads.
Choose brokers with floating spreads
As stated earlier, variable spreads tend to be considerably tighter than fixed ones. It is common for market makers to loudly advertise their fixed spreads, but in most cases this is merely a marketing ploy aimed at attracting new traders.
Such liquidity providers open positions against their customers rather than transferring orders to the open market. This practice creates a conflict of interest: the market maker will never sacrifice its own profits for the sake of yours.
It is also common for such brokers to refuse to execute trades for some customers under certain market conditions. Fixed-spread offerings normally target novice traders who lack experience and do not know any better.
Trade high-liquidity pairs
If you seek cost-effectiveness, it is advisable to trade mainly high-liquidity currency pairs. Exotic pairs may seem appealing because of the large price fluctuations that often occur, but trading them is significantly more volatile and unsuitable for newcomers.
Novices should start with majors like the EUR/USD, GBP/USD, EUR/GBP, USD/CHF, AUD/USD, EUR/JPY and AUD/JPY. These pairs have the highest liquidity and typically offer the most cost-effective spreads.
As a rule of thumb, the greater the trading volume of a currency pair, the narrower the spread brokerages tend to offer when market conditions are normal. By contrast, more exotic currency pairs such as USD/ZAR have considerably broader spreads that can reach 90 pips or more.
Refrain from trading before and after major news releases
It is crucial to remember that spreads can sometimes run off the rails and experience extreme fluctuations even when trading major pairs with a good brokerage. Such tendencies typically begin to manifest right before or after important news releases.
At times, the impact of news on price movements is so enormous that forex brokerages boost spread width dramatically before and after announcements in order to reduce their risk exposure.
Because of this, traders must keep a close watch on their calendars so they can identify times when news may influence the markets adversely. Needless to say, they should refrain from entering positions immediately before or after such releases.
Pick the right trading hours
Novices should choose their trading hours carefully because the time of day can influence spreads. Trading costs are at their lowest during the four main trading sessions (New York, Tokyo, London and Sydney) because of the high volumes of currency pairs traded.
Seasoned investors prefer to trade during these hours so they can benefit from the tightest spreads. They become even lower when the New York trading session overlaps with the London session, which occurs between 08:00 and 23:00 EST.
In addition, the prices of some currencies, such as the EUR, are prone to move less during certain periods of the day. Astute traders use this to their benefit by opening positions only during periods of reduced volatility.
Beyond spreads
Cost-effective trading is not achieved solely by looking for the lowest spreads. What also matters is how solid and quick the broker’s order execution is. Trades must be executed at the same prices the trader sees when clicking the buy or sell button.
If execution is slow, prices might move several pips in the wrong direction so that the order is placed at a wider spread, ultimately costing traders money. Conversely, when execution is quick, orders are filled at the prices the broker advertises.
This prevents issues such as slippage and requoting. Delays can have serious consequences because the foreign-exchange markets are extremely dynamic and prices can move within milliseconds.
Spreads and currency pairs
The spread differs for each currency pair. For example, volatile currency pairs usually enjoy a smaller spread, while less liquid pairs generally have a higher spread. This simple fact is one of the main reasons why so many traders prefer the EUR/USD currency pair, as its spread is relatively low. This pair is especially popular among scalpers who need the lowest spreads possible.
One example of a currency pair with a very high spread is CAD/NZD. Although its spread is quite high, some pairs have even higher spreads. Most traders avoid trading such pairs unless they have a specific strategy that requires high spreads to work.
Trading the EUR/USD pair is one of the easiest ways to start your forex trading career. Keep in mind that if you decide to switch to another pair, you will need a reliable and safe long-term strategy because higher spreads will have a significant impact on your losses and profits.
Conclusion
Understanding the spread is crucial for any successful trader. If you trade with brokers that charge high spreads, you will inevitably incur extra costs, especially if you are a day trader who opens and closes positions frequently.
We recommend looking for Straight Through Processing (STP) or Electronic Communication Network (ECN) brokerages rather than using dealing-desk brokers that reprocess trades and charge wider spreads. Above all, choose a reputable broker that is adequately and strictly regulated to ensure a higher level of safety for you and your funds.