If you’re starting your forex trading journey, you’ve likely come across the term “spread.” So, what is a spread in forex? Simply put, it’s the difference between the buying price (ask price) and the selling price (bid price) of a currency pair. The spread is an important cost factor in forex trading, and it can significantly impact your profitability.
Understanding spreads is crucial for every trader. It helps you know your costs upfront, choose the right broker, and develop strategies that align with your trading style. This guide will explain the meaning of spread in forex, the different types of spreads, how to calculate them, and how to minimize costs effectively.
Types of Forex Spreads
Spreads vary depending on the broker and market conditions. Here’s a closer look at the most common types:
Fixed Spreads
Fixed spreads remain constant, regardless of market conditions. Brokers offering fixed spreads usually operate as market makers. This means they control the pricing directly, rather than connecting you to the larger forex market.
Advantages of Fixed Spreads
- Costs are predictable, making it easier to plan trades.
- Suitable for beginners who want consistent conditions.
Disadvantages of Fixed Spreads
- Spreads may be higher than variable spreads during liquid market conditions.
- Can widen during extreme market volatility.
Example: For EUR/USD, a broker with a fixed spread may charge 1.5 pips at all times. Even during high volatility, the spread remains unchanged.
Variable Spreads
Variable spreads fluctuate based on market conditions. Brokers offering variable spreads typically use ECN (Electronic Communication Network) or STP (Straight Through Processing) systems, connecting traders directly to the market.
Advantages of Variable Spreads
- Spreads can be as low as 0.1 pips during high liquidity.
- No dealing desk interference, ensuring transparency.
Disadvantages of Variable Spreads
- Spreads can widen significantly during volatile or low-liquidity periods.
- May be less predictable than fixed spreads.
Example: During the London-New York overlap, the spread for GBP/USD might drop to 0.3 pips. However, during the Sydney session, it could rise to 1 pip due to lower market activity.
Commission-Based Spreads
Some brokers offer very tight spreads but charge a commission on each trade. This model is common with ECN brokers and is favored by high-frequency traders.
Advantages of Commission-Based Spreads
- Ultra-low spreads, often close to zero during active market hours.
- Transparent pricing, with commissions clearly stated.
Disadvantages of Commission-Based Spreads
- Commissions can add up for small or frequent trades.
- Total trading costs may vary depending on trade volume.
Example: A broker might offer a 0.1 pip spread on EUR/USD but charge a $7 commission per standard lot traded. For a high-volume trader, this setup often results in lower costs.

How to Calculate Spreads?
Calculating the spread in forex is simple but essential. It helps you understand your costs before entering a trade.
Formula
Spread = Ask Price – Bid Price
Step-by-Step Example
- Check the Prices: Let’s say the bid price for EUR/USD is 1.1050, and the ask price is 1.1053.
- Calculate the Spread: Subtract the bid price from the ask price:
- 1.1053 – 1.1050 = 0.0003
- Convert to Pips: A pip is the fourth decimal place for most currency pairs (or the second decimal for JPY pairs). The spread in this example is 3 pips.
Understanding this calculation helps you assess trading costs accurately.
The Impact of Spreads on Trading Costs
Spreads are a direct cost for forex traders. Every time you open a trade, the spread determines how much the market needs to move in your favor for you to break even.
How Spreads Affect Different Trading Styles?
Scalping
Scalpers make many small trades within short timeframes. For them, tight spreads are critical because high spreads can quickly eat into profits.
Example: A scalper trading EUR/USD with a 0.5-pip spread makes 50 trades in a day. The total cost is 25 pips. If the spread were 1 pip, the cost would double to 50 pips.
Swing Trading
Swing traders hold positions for days or weeks. For them, spreads are less critical because they aim for larger price movements.
Example: A swing trader might target a 100-pip gain on EUR/USD. Whether the spread is 0.3 or 1 pip, it’s a small percentage of their potential profit.
Long-Term Investing
Long-term investors hold trades for months or years. Spreads have minimal impact compared to other factors like swaps or fundamental changes.
Example: An investor holding USD/JPY for six months is more concerned with economic trends than a 1-pip spread.

Tips to Minimize Spread Costs
Choose a Broker with Tight Spreads
Brokers like Defcofx offer some of the tightest spreads in the market, starting at just 0.3 pips. Choosing a broker with low spreads reduces your costs for every trade.
Trade During High Liquidity
Spreads narrow during times of high market activity. The best times to trade are during major sessions, such as the London and New York overlap.
Example: Trading GBP/USD during the overlap might cost you 0.5 pips, compared to 1 pip during the Sydney session.
Avoid Trading During Volatility
Market volatility, such as during major news events, can cause spreads to widen significantly. Unless you have a solid strategy, it’s best to wait for the market to stabilize.
Use a Commission-Based Account
For frequent traders, accounts with ultra-low spreads and small commissions can save money in the long run.
Factors That Affect Forex Spreads
Spreads can vary based on several factors, and understanding these can help you better manage your trading costs.
Market Liquidity
When there’s a lot of liquidity, spreads are usually tighter. Liquidity is highest during major market sessions, like the London and New York overlap, as more traders are active.
Example: EUR/USD often has spreads as low as 0.1-0.3 pips during these peak hours, thanks to high trading volume.
Market Volatility
Volatility can cause spreads to widen. Events like economic data releases, interest rate decisions, or geopolitical news often lead to unpredictable price movements.
Example: During a Federal Reserve interest rate announcement, spreads on USD pairs may increase significantly as traders react to the news.
Currency Pair
Major currency pairs like EUR/USD or USD/JPY tend to have tighter spreads because they’re more liquid. Exotic pairs, like USD/ZAR (US Dollar/South African Rand), usually have wider spreads due to lower liquidity.
Example: A broker may offer a 0.5 pip spread on EUR/USD but a 7 pip spread on USD/ZAR.
Broker’s Pricing Model
Different brokers use different pricing models, such as market maker or ECN. ECN brokers usually offer tighter spreads but may charge a commission.
Example: A market maker broker might provide a 1 pip spread with no commission, while an ECN broker offers a 0.1 pip spread with a $7 commission per lot.

Spread Strategies for Scalpers
Scalpers rely on small, frequent trades and aim to profit from tiny price movements. Managing spreads is especially critical for this trading style.
Why Tight Spreads Are Essential for Scalpers?
For scalping to be profitable, trading costs must remain low. High spreads can quickly eat into profits.
Example: A scalper trades 10 times a day with a spread of 0.5 pips per trade. Their total cost is 5 pips daily. If the spread increases to 1 pip, their cost doubles to 10 pips.
Tips for Scalpers to Minimize Spread Costs
- Trade during high liquidity periods, such as the London-New York overlap.
- Choose brokers like Defcofx, which offer spreads as low as 0.3 pips.
- Focus on major currency pairs with consistently tight spreads, like EUR/USD.
Spread Strategies for Swing Traders
Swing traders hold positions for several days or weeks, targeting larger price moves. Spreads are less critical for them compared to scalpers, but they still impact profitability.
Why Spreads Matter for Swing Traders?
Even though swing traders aim for larger profits, tight spreads reduce initial trading costs, improving the risk-reward ratio.
Example: A swing trader targets a 100-pip profit on GBP/USD. If the spread is 1 pip, their net profit is 99 pips. A 3-pip spread reduces the net profit to 97 pips.
How Swing Traders Can Manage Spread Costs?
- Focus on brokers with competitive spreads on the pairs they trade frequently.
- Avoid trading exotic pairs with high spreads unless the potential profit justifies the cost.
- Use a broker like Defcofx, which offers consistently low spreads across all major pairs.
Understanding Bid-Ask Spread During News Events
News events can cause spreads to widen significantly, especially for major economic data releases or geopolitical developments.
Why Spreads Widen During News?
- Liquidity often decreases as some market participants exit trades to avoid risk.
- Volatility increases as traders react to unexpected news.
Example: During a US Non-Farm Payrolls report, the spread on EUR/USD might jump from 0.3 pips to 2 pips or more.
How to Trade Around News Events?
- Avoid trading during major news events unless you have a clear strategy.
- Use pending orders to enter trades once the market stabilizes.
- Monitor the economic calendar to plan trades around important announcements.
Pro Tip: Brokers like Defcofx provide real-time market updates to help traders stay informed during volatile periods.

How Spread Costs Add Up Over Time?
Even small spreads can accumulate into significant costs over time, especially for active traders.
The Impact of Spreads
Every time you trade, the spread cost is deducted from your account. Over hundreds or thousands of trades, this adds up.
Example:
- A trader places 500 trades in a year with an average spread of 1 pip.
- If each pip costs $10 (on a standard lot), their total cost is $5,000 in spreads.
- With a broker offering a 0.5 pip spread, the cost would drop to $2,500, saving $2,500 annually.
The Role of Technology in Spread Management
Modern trading platforms make it easier to monitor and manage spreads effectively.
Key Tools for Spread Monitoring
- Real-Time Spread Displays: Platforms like MT4 and MT5 show live bid-ask prices, helping you calculate spreads instantly.
- Custom Alerts: Set alerts to notify you when spreads widen beyond a certain level.
- Advanced Order Types: Tools like limit orders can help you enter trades at more favorable prices, reducing spread costs.
Example: A trader sets an alert to notify them if the spread on GBP/USD exceeds 2 pips. This allows them to avoid entering trades during periods of high cost.
How Defcofx Supports Spread Management?
Defcofx’s user-friendly platform offers real-time spread tracking, customizable alerts, and low-latency execution, ensuring traders can react quickly to changing market conditions.
Comparing Spreads Across Brokers
When choosing a forex broker, comparing spreads is one of the most important steps. Here’s how to evaluate brokers effectively:
What to Look For?
- Average Spread for Major Pairs: Check the typical spreads for popular pairs like EUR/USD and GBP/USD.
- Spread Behavior During News Events: Look for brokers with minimal spread widening during volatility.
- Transparency: Ensure the broker clearly displays their spread policies.
Why Defcofx Excels?
- Spreads starting at 0.3 pips for major pairs.
- Consistently competitive spreads, even during peak trading hours.
- No hidden costs or surprise charges.
Example Comparison
Broker | EUR/USD Spread | GBP/USD Spread | Fees |
Defcofx | 0.3 pips | 0.4 pips | No fees |
OANDA | 1.6 pips | 1.9 pips | $5/lot |
FXDD | 1.0 pips | 1.6 pips | No fees |
This table shows why Defcofx stands out as a cost-effective choice for traders.
Building a Spread Management Strategy
A comprehensive strategy for managing spreads can enhance your trading performance.
Steps to Create Your Strategy
- Choose the Right Broker: Start with a broker offering low and transparent spreads.
- Time Your Trades: Trade during high-liquidity periods to benefit from narrower spreads.
- Focus on Major Pairs: Stick to liquid pairs with consistently tight spreads.
- Monitor Spread Behavior: Use platform tools to track spreads in real time and avoid trades during spikes.
- Plan Around Costs: Always include the spread in your risk-reward analysis to ensure trades are worthwhile.
Example: A trader calculates that the spread cost on EUR/USD is 0.3 pips, while their profit target is 30 pips. With a risk-reward ratio of 1:2, they ensure the trade is cost-effective.
Why is Defcofx the Best Choice for Managing Spreads?
When it comes to managing trading costs, Defcofx stands out. Here’s why:
- Tight Spreads: Starting as low as 0.3 pips, they help traders minimize costs.
- High Leverage Options: Up to 1:2000 leverage provides flexibility for small accounts.
- No Hidden Fees: With no commissions or swap charges, you know exactly what you’re paying.
- Fast Withdrawals: Processed within 4 business hours, so you can access your funds quickly.
- Global Reach: Available in multiple languages, making it accessible to traders worldwide.
Whether you’re a beginner or an experienced trader, Defcofx provides the tools and pricing to keep your trading profitable.
Conclusion
The meaning of spread in forex is simple—it’s the cost of trading. But understanding how spreads work and their impact on your profits is critical. Whether you’re a scalper or a swing trader, managing spread costs can significantly improve your bottom line.
By choosing brokers like Defcofx, which offer low spreads, high transparency, and excellent support, you can trade with confidence and focus on growing your account. Always take the time to compare brokers, calculate your costs, and plan your trades to minimize expenses and maximize returns.
FAQs
What is a spread in forex?
A spread is the difference between the buying price (ask) and the selling price (bid) of a currency pair. It’s a key cost in trading.
How do spreads affect trading costs?
Spreads determine how much the market needs to move in your favor to break even. Wider spreads mean higher trading costs.
What is the best spread for scalpers?
Scalpers need tight spreads, often as low as 0.1-0.5 pips, to keep costs low during frequent trades.
How can I calculate the spread?
Subtract the bid price from the ask price. For example, if the bid is 1.1050 and the ask is 1.1053, the spread is 3 pips.
Why should I choose Defcofx?
Defcofx offers low spreads starting at 0.3 pips, no hidden fees, and fast withdrawals. These features make it ideal for traders looking to minimize costs and trade efficiently.
Expand Your Knowledge with Defcofx
Want to gain more knowledge from Defcofx? Start by exploring the following must-read topics: