Module 2: Your real trading costs · Lesson 5 of 11

Spreads explained

3 min read

The spread is the difference between the price you can buy at (the ask) and the price you can sell at (the bid). You pay it on every trade, which is why a new position usually shows a small loss the instant it opens.

Reading a quote

Every currency pair has two prices. If GBP/USD is shown as 1.2650 / 1.2652, you would sell at 1.2650 and buy at 1.2652. The gap of 0.0002 is 2 pips, because a pip on most pairs is 0.0001. On JPY pairs a pip is 0.01, so a USD/JPY quote of 150.10 / 150.13 has a 3-pip spread.

Turning pips into money

The spread cost depends on your position size.

Example: EUR/USD has a spread of 1.5 pips. One pip is worth about $10 on a standard lot (100,000 units), $1 on a mini lot (10,000 units) and $0.10 on a micro lot (1,000 units). So the spread costs 1.5 × $10 = $15 on a standard lot, $1.50 on a mini lot and $0.15 on a micro lot.

You pay the spread once per round trip. You buy at the higher price and later sell at the lower price, so the market has to move in your favour by the spread just for you to break even.

Fixed vs variable spreads

Fixed spreads stay the same in most conditions, though brokers may still widen them during extreme events.
Variable spreads move with market liquidity, meaning how easily the currency can be bought and sold.

When spreads widen

Variable spreads tend to widen:

around major economic news releases
when markets are quiet, such as the hand-over between trading sessions late in the New York day
on less traded pairs, known as exotics
during sudden market stress

Tip: If your strategy targets small moves, a spread that doubles at news time can wipe out much of your expected profit. Check spreads before you enter.

Risk: Wider spreads at volatile moments can also trigger stop-losses earlier than you expect, because a sell stop on a long position is hit by the bid price.

Key takeaways

The spread is the gap between bid and ask, and you pay it on every trade.
Multiply the spread in pips by the pip value for your lot size to get the cost.
Variable spreads widen during news, quiet hours and on exotic pairs.
Your trade must move by the spread before it reaches break-even.

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Educational content only — not investment advice. Leveraged trading carries a high risk of loss.