What Is Spread in Forex? Types, Calculation & How to Minimize

The spread is the single most universal cost in forex trading. Every trade you open involves a spread — even on "commission-free" accounts. Understanding what it is, how it is calculated, and how it affects your profitability is foundational knowledge for any trader, from someone placing their first trade to an experienced participant optimising their cost structure.

What Is Spread in Forex?

The spread is the difference between the bid price (the price at which you can sell a currency pair) and the ask price (the price at which you can buy it).

Example:

EUR/USD is quoted as: Bid: 1.08450 / Ask: 1.08460

The spread is: 1.08460 − 1.08450 = 0.00010, or 1.0 pip

When you open a buy (long) position, you pay the ask price. If you immediately close that position, you receive the bid price. The difference — the spread — is an immediate cost at trade entry. Your trade must move in your favour by at least the spread amount before you break even.

Pips and Pipettes

For most forex pairs quoted to five decimal places:

• 1 pip = 0.0001 (the fourth decimal place)
• 1 pipette = 0.00001 (the fifth decimal place, one-tenth of a pip)

For JPY pairs quoted to three decimal places:

• 1 pip = 0.01 (the second decimal place)

When a broker quotes EUR/USD with a spread of 0.5 pips, this is 0.5 × 0.0001 = 0.00005. A 1.0 pip spread = 0.0001.

Fixed vs Variable Spreads: The Key Distinction

Not all spreads behave the same way. The two main types are fixed and variable (also called floating) spreads.

Fixed Spreads

A fixed spread remains constant regardless of market conditions. Whether the market is in the middle of the London–New York overlap or at 03:00 UTC on a quiet Tuesday, the spread on a fixed-spread account stays at the quoted level — for example, 2.0 pips on EUR/USD.

Advantages of fixed spreads:

• Predictability: You always know your cost in advance
• No surprise widening during news events
• Easier to calculate profitability for strategies that depend on precise cost modelling

Disadvantages of fixed spreads:

• Typically wider than variable spreads during normal market conditions
• The broker absorbs all spread fluctuation risk — they charge a premium for this guarantee
• Less competitive for high-frequency or large-volume traders

Fixed spreads are common on market maker broker accounts, particularly standard or classic account types aimed at beginners.

Variable (Floating) Spreads

A variable spread moves with market conditions — tightening during high-liquidity periods and widening during low liquidity, high volatility, or major news releases.

Example of variable spread behaviour on EUR/USD:

• During London–New York overlap: 0.1–0.3 pips on raw spread accounts
• During Asian session (low liquidity): 0.5–1.5 pips on raw spread accounts
• During major news releases (NFP, CPI): 3–10+ pips, even on normally tight accounts

Advantages of variable spreads:

• Tighter during peak hours, which is beneficial for active traders
• Reflects real market conditions rather than a broker-set artificial level
• More competitive for scalpers who trade during high-liquidity windows

Disadvantages of variable spreads:

• Unpredictable during news events — stops can be triggered by spike widening
• Requires more careful cost modelling for strategy analysis

Variable spreads are standard on ECN (Electronic Communication Network) and STP (Straight Through Processing) accounts.

Spread + Commission: Understanding Account Type Costs

Modern forex brokers typically offer two main account cost structures:

Structure 1: Spread Only (No Commission)

Used on standard/classic accounts. The broker's revenue comes entirely from the spread. Example: EUR/USD spread of 1.2 pips, no commission per trade.

Total cost per standard lot (100,000 units): 1.2 pips × USD 10 per pip = USD 12 per round trip

Structure 2: Raw Spread + Commission

Used on ECN/raw/zero accounts. The broker passes through near-raw interbank spreads and charges a fixed commission per lot instead.

Example: EUR/USD spread of 0.1 pips + USD 3.50 commission per side (USD 7 round trip per standard lot)

Total cost per standard lot: (0.1 × USD 10) + USD 7 = USD 1 + USD 7 = USD 8 per round trip

In this example, the raw spread account is cheaper. But this calculation depends on lot size. For micro-lot traders (0.01 lots):

• Standard account: 1.2 pips × USD 0.10 = USD 0.12
• Raw account: (0.1 × USD 0.10) + (USD 7 × 0.01) = USD 0.01 + USD 0.07 = USD 0.08

The raw account is still cheaper in absolute terms, but the difference is tiny. For very small trade sizes, commission-free accounts with modest spreads are often more convenient.

Key takeaway: For standard lot traders (0.1 lots and above), raw spread + commission accounts are almost always cheaper than spread-only accounts during normal market hours.

How Do Brokers Make Money from Spreads?

Understanding broker economics helps you evaluate whether a broker's pricing is sustainable and fair.

Market Maker Brokers

A market maker broker takes the opposite side of your trade. When you buy EUR/USD, the broker sells it to you. The broker profits from:

1. The spread: You buy at the ask (1.08460) and can sell at the bid (1.08450). The spread is immediate broker revenue.
2. Hedging: The market maker typically hedges a portion of its net exposure in the interbank market, keeping its own risk managed.
3. Client losses: When clients lose on trades, the market maker profits from the opposite position. This creates a potential conflict of interest — though well-regulated market makers are required to manage this carefully.

Market makers can offer fixed spreads because they control their quote prices.

ECN/STP Brokers

An ECN broker routes your orders directly to liquidity providers (banks, hedge funds, other traders). The broker makes money from:

1. Commission: A flat fee per lot, regardless of whether you win or lose on the trade.
2. Markup on the interbank spread: Some STP brokers add a small markup to the raw spread received from liquidity providers.

ECN brokers have less conflict of interest with client profitability, since their revenue is commission-based rather than dependent on client losses.

The "No Commission" Marketing Claim

Brokers that advertise "zero commission" are truthful — they do not charge a separate commission line item. But the cost is embedded in the spread. There is no such thing as a completely free trade; the spread is the minimum cost on every transaction.

How to Calculate Your Spread Cost

Formula

Spread cost = Spread (in pips) × Pip value × Number of lots

Pip value for most USD-quoted pairs (e.g., EUR/USD, GBP/USD):

• 1 standard lot (100,000 units): USD 10 per pip
• 1 mini lot (10,000 units): USD 1 per pip
• 1 micro lot (1,000 units): USD 0.10 per pip

Example 1: You trade 0.5 lots of EUR/USD with a 1.2-pip spread.

Spread cost = 1.2 × USD 10 × 0.5 = USD 6

Example 2: You trade 2 lots of GBP/USD with a 1.5-pip spread.

Spread cost = 1.5 × USD 10 × 2 = USD 30

For JPY pairs: The pip value per standard lot is approximately USD 9.10 when USD/JPY is around 110. Use the formula: pip value = (0.01 / exchange rate) × lot size.

For other pairs, use your broker's pip value calculator or the one in MT4/MT5 under the Trade > Calculate tab.

Spread Impact by Trading Style

The spread's impact varies dramatically by trading strategy:

Scalpers (1–5 pips target)

For a scalper targeting 3 pips of profit, a 1.0-pip spread means 33% of the gross profit is immediately consumed by the spread cost. Scalpers are the most spread-sensitive traders and must use raw spread accounts during peak liquidity hours.

At 1.0-pip spread and 3-pip target, break-even win rate (excluding commissions): approximately 50%. Adding a 0.7-pip commission equivalent brings the required win rate even higher.

Day Traders (10–50 pip targets)

A 1.0-pip spread on a 20-pip target represents 5% of the gross gain. Spread is important but less critical than for scalpers. Variable spreads on standard accounts can be acceptable.

Swing Traders (50–300+ pip targets)

On a 150-pip swing trade, a 1.2-pip spread represents less than 1% of the gross gain. Spread cost is marginal for swing traders. Overnight financing (swap) becomes the more significant recurring cost consideration.

Position Traders (Weeks to months)

Spread cost is negligible relative to holding periods. Swap rates and broker stability matter more than spread for multi-week position traders.

How to Minimize Spread Costs: Practical Strategies

1. Use a Raw Spread Account for Active Trading

If you trade more than 10 times per week or regularly use more than 0.1 lots, calculate whether a raw spread + commission account is cheaper than your current standard account. For most active traders, it is.

2. Trade During the London–New York Overlap (12:00–16:00 UTC)

Variable spreads tighten during peak liquidity. EUR/USD on a raw account can trade at 0.0–0.2 pips during this window versus 0.5–1.0 pips during Asian hours. For a trader doing 20 trades per day, trading during the overlap versus during the Asian session could reduce spread costs by 60–80%.

3. Avoid Trading Around Major News Events

The 5 minutes before and after high-impact data releases (NFP, FOMC, CPI) see spread widening on even tight accounts. Unless your strategy specifically trades news, pausing around these windows avoids unexpected spread costs.

Key data release times (UTC):

• US NFP (first Friday of month): 13:30 UTC
• US CPI: 13:30 UTC (on release day)
• FOMC rate decision: 19:00 UTC
• UK CPI: 07:00 UTC
• ECB rate decision: 13:15 UTC (press conference 13:45 UTC)

4. Use Limit Orders Instead of Market Orders

Market orders execute at the current ask (for buys) or bid (for sells). Limit orders can be placed inside the spread or at better prices. A buy limit below the current market reduces your effective entry cost. This is not always possible depending on your strategy, but where it is, limit orders improve average entry prices.

5. Choose the Right Pair for Your Strategy

Major pairs (EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD, NZD/USD) have the tightest spreads because they have the most liquidity. Minor pairs (EUR/GBP, EUR/AUD, AUD/JPY) are moderately wider. Exotic pairs (USD/TRY, USD/ZAR, USD/MXN) can have spreads 10–50x wider than EUR/USD.

All else equal, trading major pairs is cheaper than trading exotics.

6. Compare Spread Schedules, Not Just Advertised Rates

Brokers typically advertise their minimum or average spread, which may reflect only their best conditions. Request or look up the full spread schedule including Asian session spreads and post-news conditions. Some brokers publish their spread history; check this data if available.

Spread on Exness: Account Type Comparison

Exness offers multiple account types with different spread structures. The key options:

Standard Account: Variable spread, no commission. EUR/USD spreads typically around 0.3–1.0 pips during peak hours. Suitable for beginners and swing traders.

Standard Cent Account: Same structure as Standard but in cent lots (1/100th of Standard), allowing micro-position trading. Suited to very small account sizes.

Pro Account: Variable spread, no commission, tighter than Standard. Intended for more experienced traders.

Raw Spread Account: Near-zero spreads (0.0 pips on EUR/USD is common during peak hours) + commission per lot. Best for scalpers and high-frequency traders.

Zero Account: Zero spread on the top 30 instruments for 95% of trading time + commission. The tightest spread tier.

For the most current spread data, always check Exness's live spread page or the instrument specification in MT4/MT5, as spreads fluctuate in real time.

Summary

The spread is the cost you pay every time you enter a trade. It is built into every quote as the gap between bid and ask. Fixed spreads offer predictability; variable spreads offer tighter costs during peak hours. For active traders, raw spread + commission accounts almost always produce lower total costs than spread-only accounts. To minimise spread costs: use the right account type, trade major pairs, trade during the London–New York overlap, and avoid high-impact news releases unless your strategy specifically targets them.

Understanding spread is the foundation of cost-conscious trading. Once you know exactly what you are paying and when, you can make more informed decisions about which instruments to trade, when to trade them, and which account type best suits your style.

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This article is for educational purposes only and does not constitute financial or investment advice. Trading forex involves significant risk of capital loss. All examples are illustrative and do not represent guaranteed outcomes.