Understanding Spreads and Trading Costs — Market Fundamentals

What Is a Spread?

The spread is the difference between the price at which you can sell a currency pair (the bid) and the price at which you can buy it (the ask). This difference represents a built-in cost of trading, often functioning as compensation for the broker or liquidity provider facilitating the trade.

[Read the lesson: Understanding Spreads and Trading Costs](/learn-to-trade/market-fundamentals/understanding-spreads-and-trading-costs)

Calculating Spread Cost

If EUR/USD has a bid price of 1.0848 and an ask price of 1.0850, the spread is 0.0002, or 2 pips. This means that the instant you open a trade, the price needs to move 2 pips in your favor just to break even, before any profit begins.

**Spread in Action:** Bid: 1.0848, Ask: 1.0850. Spread = 1.0850 − 1.0848 = 0.0002 = 2 pips. On one standard lot, where a pip is worth about $10, a 2-pip spread costs approximately $20 to cross.

[Read the lesson: Understanding Spreads and Trading Costs](/learn-to-trade/market-fundamentals/understanding-spreads-and-trading-costs)

Other Trading Costs to Know

Besides the spread, some brokers charge a separate commission per trade, and holding a position overnight may incur a swap (rollover) fee based on interest rate differences between the two currencies. Being aware of all these costs helps you judge whether a trading strategy is realistically profitable.

[Read the lesson: Understanding Spreads and Trading Costs](/learn-to-trade/market-fundamentals/understanding-spreads-and-trading-costs)