Forex Trading Spread Explained with Examples

Forex Trading Spreads - Best Forex Spreads for Forex Trading

The spread is the difference between the price which you buy and the price that the broker is offering to sell.

Spread can also be defined as the difference between the Bid Price and the Ask Price, this Bid and Ask price are shown on the example below and the spread is also calculated as the difference between these 2 price points.

You can look for the best forex spreads by reviewing the brokers online found on the best forex brokers list section of this website - Comparison of Forex Brokers with Low Spread.

Example of Spreads on MT4

Forex Spreads for EURUSD Currency Pair Bid Ask Spread Calculation of 1.5 Pips - Forex Spreads

Best Forex Spreads EURUSD - Bid Ask Spread Calculation of 1.5 Pips

Example of How to Calculate Spread:

If The Bid Ask of EURUSD is 1.2914/1.2917

The Spread is 1.2917-1.2914= 3 pips

These 3 pips is profit for the broker. If you were to buy EURUSD you would buy at 1.2917. If you wanted to sell back the EURUSD you have just bought, the broker will buy from you at 1.2914, i.e. 3 pips less than the price you bought, the broker makes profit this way. The low spreads charged is about 2 pips for major currency pairs. It is best to open an account where the spreads charged are low so that you can reduce your transaction costs when buying and selling.

Update: From 2010, there was introduction of fractional pips, with fractional pips brokers also argued that they could now offer lower spreads.

For Example in the above spread illustrated on the MT4 Platform Bid Ask Quotes the spread is:

1.33790/1.33750

Spread is 1.33790-1.33750= 1.5 Pips

Most currency brokers now use the fractional pips, 5 Decimal Place Quotes so as to offer traders lower spreads, commonly referred to as "tight spreads", for example 1.8 Pips Spread instead of fixed 2 Pips spreads.

Examples of Average Spreads (Major Pairs) in the Forex Market