What you'll learn
- Read a two-way price
- Explain why every trade starts at a small loss
- Compare spreads between brokers and pairs
Reading the quote
A platform shows EUR/USD as 1.10000 / 1.10012, or with the two numbers side by side on buy and sell buttons. The lower number is the bid, the higher is the ask. If you click buy you pay 1.10012; if you immediately clicked sell you would receive 1.10000. The 1.2-pip difference is the spread and it went to the broker or the liquidity provider.
Why a new trade shows a loss
Because you buy at the ask and the platform values your open position at the bid, a trade you have just opened shows a loss equal to the spread. The price has to move in your favour by the spread before you are level. This is normal, and it is why spread matters more to short-term traders, who pay it many times a day, than to long-term ones, who pay it once for a large move.
Fixed and variable spreads
Most brokers quote variable spreads, which narrow when the market is busy and widen when it is quiet or nervous. A fixed spread stays the same but is set wider to cover the broker's risk. A raw or ECN account shows the market spread, often close to zero, and charges a separate commission instead; the total cost is what matters, and a later lesson shows how to add it up.
What moves a spread
- Time of day: tightest when London and New York overlap, widest in the hours between New York's close and Tokyo's open.
- News: spreads jump for seconds or minutes around big releases.
- The pair: majors are tight, crosses wider, exotics widest.
- The broker: the same pair at the same moment can cost twice as much at one broker as another.
Example: Counting the spread as a cost
You buy one standard lot of EUR/USD, 100,000 euros, with a 1.2-pip spread. One pip on a standard lot is worth 10 dollars, so the spread costs 12 dollars. If you make ten trades a day, that is 120 dollars a day before any price movement. Cut the spread to 0.6 pips and the same activity costs 60 dollars. Over a year the difference is thousands, which is why serious traders compare spreads before anything else.
Key takeaways
- Bid is where you sell, ask is where you buy, spread is the difference.
- A new trade opens at a loss equal to the spread.
- Spreads vary by pair, time of day, news and broker.
- For active traders the spread is the largest cost and the easiest to reduce.
Knowledge check
Trading forex, CFDs and other leveraged products carries a high risk of losing money. This lesson is general education, not advice. Risk disclosure.