Bid, Ask and Spread, The Cost You Pay on Every Trade

[Fairman]

Bid, Ask and Spread, The Cost You Pay on Every Trade

Every price quote in forex has two numbers: the bid and the ask. Understanding them is basic, but many beginners skip over it and then wonder why their trades start in the red.

Bid price: the price at which you can sell.
Ask price: the price at which you can buy.
Spread: the difference between the two.

Example: EURUSD bid 1.0850, ask 1.0852. The spread is 0.0002, or 2 pips.

What this means:

- If you buy, you pay the ask price. Your trade starts slightly below breakeven, since you could only sell at the lower bid price.
- If you sell, you receive the bid price.
- The spread is a cost, like a small fee, built into every trade.

What affects spreads:

- Liquidity: busy pairs and sessions often have tighter spreads
- Volatility: spreads widen during news and fast moves
- Time of day: spreads often widen during rollover or off-hours
- Broker type: some brokers charge wider spreads with no commission, others offer tighter spreads plus a commission

How to deal with spreads:

1. Trade major pairs during active sessions.
2. Avoid entering at illiquid times.
3. Include spreads in your risk calculations.
4. Choose targets large enough that spreads don't consume your profit.

A 2 pip spread on a 10 pip target takes a fifth of your gain.

Know your costs before you trade. They show up in every statement.

[Fairman]

Practical point for beginners: check the spread at the time of day you trade, not the advertised minimum. On a lot of brokers the spread widens around the daily rollover, around 10pm or 11pm Lagos time depending on US daylight saving. Trades opened then start further in the red. The easiest habit is to glance at the spread before every entry and write it in your journal next to the trade. After a few weeks you'll see the normal number for your session and pair. If it's double that when you're about to click, something is going on, maybe news or thin liquidity, and it's often better to wait a few minutes.

[Fairman]

Don't compare brokers only by spread. Some have very low spreads but charge a commission per lot. Add both together to get the real cost before you decide which one is cheaper. For example, a standard account with a 1.2 pip spread costs about 12 dollars per lot on EURUSD. A raw account with a 0.2 pip spread plus 7 dollars commission per round lot costs about 9 dollars. Then check the spreads at the times you actually trade, since a broker's advertised minimum spread might only exist during the London session. Swap rates matter too if you hold trades overnight regularly.