What Is Spread
in Trading?
Learn what spread is in trading, how it's calculated, and how liquidity affects the size of the spread you see on a quote.
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Spread is one of the most fundamental costs in trading, and it's usually the first cost a new trader encounters when looking at a price quote.
This guide explains what spread is, how it's formed, and why it can vary between instruments and market conditions.
What Is Spread?
Spread is the difference between the bid price (the price at which you can sell) and the ask price (the price at which you can buy) for a given instrument. This difference represents a cost that is incurred as soon as a position is opened, before any price movement has occurred.
For example, if the bid price for a currency pair is 1.1000 and the ask price is 1.1002, the spread is 2 pips.
How Spread Is Formed
Spread is influenced by the activity of liquidity providers — banks, financial institutions and other market participants who continuously quote prices at which they are willing to buy and sell. Greater liquidity (more active buyers and sellers) generally supports tighter spreads, while lower liquidity can result in wider spreads.
Spreads can widen during periods of reduced market activity, such as around major news releases, market holidays, or outside of the most active trading sessions.
Why Spread Matters
Because spread is incurred on every trade, it directly affects the cost of trading, particularly for styles that involve a high number of transactions, such as scalping or day trading. Understanding typical spread levels for the instruments you're interested in is a useful part of assessing the overall cost of a trading approach.
🔖 Summary
Spread is the difference between the bid and ask price, and it represents a cost incurred on every trade. It is influenced by market liquidity and can widen or narrow depending on conditions, making it an important factor to understand when assessing overall trading costs.
Frequently Asked Questions
Is spread the same for every currency pair?
No. Spread varies by instrument and is generally influenced by that instrument's typical liquidity and trading activity.
Does spread change throughout the day?
Yes, spread can widen or narrow depending on market liquidity, which often varies by session and around scheduled news events.
Who determines the spread?
Spread reflects pricing from liquidity providers and the broker's own pricing model, and can vary between providers.
Risk Warning
Trading forex and CFDs involves significant risk and may not be suitable for all investors. You may lose all of your invested capital. Please ensure you fully understand the risks before trading.
GTCFX operates as a multi-regulated group of companies, clients are kindly advised to confirm the specific legal entity, regulation, and jurisdiction under which they are being onboarded.