Spread definition
Spread
The spread in forex is the difference between the prices at which a broker allows you to sell and buy a currency. The price at which you buy the base currency is known as the “bid,” and the price at which you sell the base currency is the “ask.” Together the prices are referred to as the bid-ask spread.
Brokers may widen the spread to make a profit from facilitating the trade, meaning the trader would pay more when buying or receive less when selling. The spread price may widen or narrow depending on the market liquidity. Fewer traders placing buy and sell orders mean the spread will typically be larger, as those sellers can ask for higher prices due to low demand.
The ever-changing spread seen in forex markets is called a variable spread. Spread in other markets can be fixed, but forex will always exhibit variable spreads. Spread with FOREX.com can also vary depending on the account you have. Standard accounts will have larger spreads compared with more professional accounts. You can view .
How is spread calculated?
To calculate a forex pair’s spread, you must determine the difference between the buy and sell prices. This is done by subtracting the bid price from the ask price and then expressing the difference in pips.
If GBP/USD is trading at 1.1996/1.1993, subtracting the bid (1.1996) from the ask (1.1993) leaves you with 3 pips difference, meaning GPB/USD has a spread of 3 pips. Of course, the bid and ask prices are always changing, meaning the spread changes constantly.